Island Life Magazine Ltd February/March 2008 | Page 14
life
ADVERTISEMENTS
WATCH THE TIDES
NOT THE WAVES
Michael Sleep of the St. James’s Place
Partnership describes how regular
investing could be a less volatile
strategy for our longer-term wealth.
A
nyone investing in the
stock markets will
have natural concerns
about short-term market
fluctuations. The only thing
we can be certain about is
that there is no way to predict
what direction the markets
will move in – either on a day
to day or longer term basis.
Stock markets will always
witness times of growth
14
and decline in the shorter
term. This ‘volatility’ can
often be significant and was
particularly prevalent in the
aftermath of 9/11 and the Iraqi
conflict. However, history has
demonstrated that over the
longer-term equity markets
do out perform all other
asset classes, despite more
volatile, short-term periods.
As investors we need to ignore
the ups and downs and look
at the broader picture.
The term ‘pound cost
averaging’ is used when
investors make regular
(normally monthly)
contributions into
equity-based investments, such
as shares, or a particular fund.
The result is that, whilst there
may be dips in the market, the
investor will benefit from the
potentially larger rises that
might be round the corner.
Looking from the outside,
a fall in the market might be
seen as a huge negative and
as a result, an inexperienced
investor might be worried.
However, investing small
amounts on a regular basis
means that each contribution
will purchase more shares or
units for a portfolio. When
prices are high you will be
buying fewer shares or units,
however, by making regular
contributions this means that
the average price paid for each
unit or share, will be lower
than the arithmetical average
of the market price. What is
more investors benefit from
the good habit of regular
savings – something we should
all be doing a little more of !
Pound cost averaging takes a
great deal of worry out of the
typical investment dilemmas
that investors might face. We
should all bear in mind that
committing funds on a regular
basis means not investing all
savings when prices might be
at a premium. The more the
market swings the greater the
benefit to somebody using
pound cost averaging. It is
certainly no secret that this
strategy of investment will
mean you would lose out on
the best of the growth in a
rising market. Nevertheless
investors can be safe in the
knowledge that pound cost
averaging is a long-standing
method of growing investment
capital during the ups and
downs that markets can
experience. In a bear market,
pound cost averaging allows
you to build up an investment
poised to benefit from a
recovery without having
to worry about trying to
work out when the bottom
of the market will occur.
For further information about
regular investment vehicles,
or a free guide to Wealth
Management or Inheritance
Tax please contact Michael
Sleep of the
St. James’s
Place Partnership at Solent
Wealth Management on
01983 299190 or visit www.
sjpp.co.uk/solentwealth
St. James's Place Wealth
Management - The Daily
Telegraph Wealth Manager
of the Year 2007
Island Life - www.isleofwight.net