What is Euro Cost Averaging and why is it a popular investment strategy?
Euro cost averaging is a common investment strategy used by investors to reduce the impact of market volatility on their investment returns. The term was first coined by Benjamin Graham in his book The Intelligent Investor. Graham writes that dollar (euro) cost averaging “means simply that the practitioner invests in common stocks the same number of dollars (euro) each month or each quarter. In this way he buys more shares when the market is low than when it is high, and he is likely to end up with a satisfactory overall price for all his holdings.”
Here are some of the main reasons why investors use this strategy:
Reduces the impact of market fluctuations
Euro cost averaging helps to smooth out the ups and downs of the market. By investing a fixed amount of money at regular intervals, investors are able to buy more shares when prices are low and fewer shares when prices are high. Over time, this can lead to a lower average cost per share, which can increase returns.
Euro cost averaging is a disciplined approach to investing. By committing to investing a fixed amount of money each month, investors are less likely to be swayed by short-term market fluctuations and emotions. This helps to ensure that they stay on track with their investment goals over the long term.
Mitigates the risk of timing the market
Timing the market is notoriously difficult, and even the most experienced investors can often get it wrong. Euro cost averaging takes the guesswork out of timing the market by investing regularly over a period of time. This helps to mitigate the risk of investing a lump sum of money at an inopportune time.
Easy to implement
Euro cost averaging is a simple investment strategy that can be easily implemented by anyone. All that is required is a regular investment of a fixed amount of money into a particular investment or portfolio.
In conclusion, euro cost averaging is a favoured investment strategy for a number of reasons. It can help to reduce the impact of market fluctuations, provide disciplined investing, mitigate the risk of timing the market, and is easy to implement. By adopting this approach, investors can potentially increase their returns and achieve their investment goals over the long term.
1 thought on “Why is Euro Cost Averaging a popular investment strategy?”
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