(Dollar) Cost average effect

Money Management - Cost average effect

The cost average effect describes the summation of the number of shares that is created by investing a savings rate when prices fluctuate.

If equal amounts are regularly invested, the cost average effect generates a higher number of units, which in turn represent a higher value.

The cost average effect shows that volatility can contribute to positive portfolio performance when investing a permanent savings rate.

The picture shows a portfolio development, which fluctuates over time and is back to the entry level at the end of the term.

If equal amounts are regularly invested, the cost average effect generates a higher number of units, which in turn represent a higher value.

With the cost average effect, price fluctuations are used to acquire more units.

Summary

Use mathematical advantages in your investments.

It should be noted that this effect only works if the long-term development of the portfolio is positive.