Investors seeking to make successful long-term investments should consider the average price method to avoid the risk of investing at the wrong time.
Investment funds are ideally suited for the long-term creation of wealth. Even small sums of money permit global investments in various asset classes (e.g. equities and bonds). However, many prospective investors are unsure about the best time to start investing in funds. After all, investment funds are vulnerable to fluctuations on the financial markets.
So-called timing, i.e. making a single investment at the (presumably) right time may work out if the financial markets follow a positive trend after the investment. However, nobody can foresee the future development of the markets, and investments made at the wrong time may result in heavy losses.
Discipline pays off
If you want to avoid the risk of investing at the wrong time, you may benefit from using the so-called average price method. According to this method, investors regularly invest the same amount over a longer period of time, for instance on a monthly basis. The purchase price for fund units thus balances out over time, as investors buy fewer (expensive) units during a stock market boom and more (cheap) units when prices are low. If you consistently adhere to this principle, you can safely ignore the best entry points for investment funds.