Eddie Hobbs new book

[daltonr]

Seems to me that "pound cost averaging" involves an element of timing the market which is a mug's game. If one decides that the stock market is the right home for some money then it would seem better to just stick it in there and then than worrying about timing the market, drip feeding, pound cost averaging etc.

Pound cost averaging has more to do with Risk than with Timing the market.
If I invest 100K in one go then the entire 100K benefits from rises, but the entire 100K gets hit during falls. The potential for greater returns is balanced by the extra risk.

Pound cost averaging spreads the investment. The various investement chunks you've made will be impacted differently by changes in the market.

In simple terms Pound Cost Averaging is a way of reducing risk by Diversification. But instead of diversifying the type of investment you have (or the basket of shares), you diversify the timing of the investment.

Just like diversifying your basket of shares, pound cost averaging isn't a good idea for everyone, it's a compromise. But it certainly reduces risk. Whether it reduces the risk by enough to justify the lost gain potential I don't know. I haven't really looked into it enough.

For some of course pound cost averaging is engaged in out of practicality. THey invest the money when they have it.

-Rd