Investing in Philippines: Cost Averaging

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Thursday, May 20, 2010

Cost Averaging

Ok I believe you already heard this term and you are wondering what it is really.

Well if you understand the word "average" from your investing online activities which was brought about by your interest to trading stocks online probably you know what it is. But let us assume we don't know. The term started as dollar cost averaging which originated in United States and then applied locally to the Philippines as investing advice of some stock brokers. From then on the concept was being taught to newbie investors as a investing tip

Basically cost averaging is buying stock with sound fundamentals on a period of time taking advantage of the stock markets bull - bear cycle. In the end the average cost of the stock is lower and when the time is right and the value of the stock is up one can sell all the stocks thus gaining profit. You don't worry when the stock is down all you do is buy on a regular basis, let say monthly, at a regular amount. Stocks are not always at high price there are times that they are low and sometimes very low that stock investors term it undervalued. Don't be tempted to buy a lot when its really low but buy according to plan. Always allocate your excess funds to other stocks as well so that your portfolio is diversified. A disciplined stock investor will be the perfect example of a practitioner of peso/dollar cost averaging. 

Discipline and time are the key components of a sound stock market investment strategy. Probably you have no excess money today. But if you save some little by little this little savings of yours can accumulate into the minimum amount of investment that you can place. From there don't stop saving. Every time you reach that savings amount place or add it to your investment. In the long run you would have save enough funds and built your portfolio.

Always remember that the stock market has the element of risk but with knowledge, discipline, and time such risk could be managed and sometimes can be use to your advantage

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Chitika