Understanding Rand Cost Averaging

If you’re new at investing, and would like to take a conservative approach where you gradually, but steadily, accumulate profit, then you can try the strategy of rand cost averaging.

Basically this means that you put a fixed amount at regular, pre-scheduled intervals, over a relatively longer time. This is the principle behind collective investments like exhange-traded funds or unit trusts.

Some companies that have mutual funds for employees offer this automatic service, using salary-deduction. Of course, the amount of shares you buy fluctuates every month, depending on the market value. But at least 1) you don’t need to monitor, 2) in the long-term, you take advantage of the average cost of shares – from both a bull market, and a bear market. Remember, though, that this is a long-term investment, and it’s in the compound interest that you’ll really earn.