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Dollar Cost Averaging

Posted By Robert On Sunday, August 24th, 2014 With 0 Comments

The monthly portfolio builder is a great way of investing for the longer term, the way that this account works is that you set up a direct debit payment to your shares account of say £50 per month. You then select a share that you wish to buy with that £50, the account will then automatically buy the shares at a set date for you.

You can say, buy any UK share say within the FTSE 350 – you can also alternate your purchases too. For example, you may wish to buy HSBC bank shares this month and then buy RSA insurance next month.

Dollar Cost Averaging

This image is a screenshot of one of our trader’s monthly portfolio builder accounts, you can buy as many stocks per month as you wish. It’s best to start with buying one single stock to start with so you get used to how the account works.

You can see in this example, four separate stocks will be purchased on the specified date of 16 April 2014. Around 09:00-11:00 hours these shares will be bought automatically at what ever price the shares are at that time.

Advantages

Offers a great way to get started on shares

You will receive automatic dividend payments from the shares you already own

These types of accounts are great when the Stock Market is falling as if the share price falls you will buy more shares with the same money that the previous month.

It “smooths out” the peaks and troughs in share price movements, allowing you to buy shares at an average price.

Disadvantages

Buying set amounts per month can make it very hard to “beat the market” by buying on buy lines, making it very hard to take advantage of buy signals on Stock Market Charts.

These types of accounts do not work quite as well in a rising market, if the share price is gradually increasing you will be buying less and less amounts of shares with your money than the previous month

Conclusion

Monthly Portfolio Builders are a great way of saving over the longer term with shares. They are a lower risk but lower reward way of investing.

These accounts work best on shares that are falling in value as you will get more and more shares as the price falls.

Not all Share Accounts will have a monthly portfolio builder option so you may need to check by contacting your bank prior to opening an account – RBS (Royal Bank of Scotland) offer a monthly portfolio builder.

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