Investing can feel tricky – especially when markets go up and down. Pound cost averaging is a simple way to invest without worrying about timing the market.
Bear in mind that investing always involves a degree of risk. The value of investments can go down as well as up, meaning you may not get back what you invest.
The idea of pound cost averaging has been around for more than 70 years. The renowned economist Benjamin Graham first came up with the term while teaching in New York.
That’s why you might also see it called dollar cost averaging.
Instead of putting in a big lump sum all at once, you invest smaller amounts regularly – such as every month.
This means sometimes you’ll buy when prices are higher and sometimes when they’re lower. Over time, this helps smooth out the ups and downs.
Markets rise and fall, but by investing bit by bit, you avoid putting all your money in when prices might be at their highest. Instead, you spread the risk and take advantage of lower prices when the market dips.
Here’s a simple example:
Imagine you invest £100 a month in a fund:
Month 1: price is £10 per unit > you buy 10 units
Month 2: price drops to £5 per unit > you buy 20 units
Month 3: price rises to £8 per unit > you buy 12.5 units
Total invested: £300
Total units bought: 42.5
Average price paid per unit: £7.06
By staying consistent, pound cost averaging could help you keep investing without the fear of short-term market movements.
It’s a simple strategy, but over time, it could make a big difference to your financial future.
If you have a larger amount of cash sitting in a current or savings account, you could invest it all at once instead.
This is known as lump sum investing. While it carries the risk of ‘mis-timing the market’, it can give your money more time ‘in the market’ and greater potential for growth over the long run.
You could also combine lump sum investing and pound cost averaging.
For example, if you have savings, or get a bonus or inheritance, you could invest some or all of it in a lump sum. Then make regular contributions to keep adding to your investment and potentially benefit from pound cost averaging.
If you have an HSBC current account or savings account (excluding Online Bonus Saver and Fixed Rate Saver), you can start investing with as little as £50.
You can try pound cost averaging by making regular payments online or using the HSBC UK Mobile Banking app.
An easy way to start investing is by using HSBC’s ready-made portfolios. You just choose your preferred level of risk and we manage the fund on your behalf.
