Another tried and tested technique for surviving a bear market, especially if you begin the process some way into the decline, is to consider buying the same stocks regularly, investing small equal money amounts each time.
This technique is known as pound (or dollar) cost averaging. The principle is simple:
The number of shares you acquire each time you invest your fixed amount of money will depend on whether share prices are high or low at the time:
Overall, you will have acquired your shares at an average price for the period concerned. If that period coincides with a bear market, your average book cost should be eventually overtaken when the new bull market begins.
Another way of achieving this is to pick a well managed general investment trust, an index tracking mutual fund or an exchange traded fund that tracks a broad market index that operates a savings scheme.
The latter two options avoid the specific risk that comes from buying shares in individual companies that may do less well than the market as a whole over the longer term. If you are confident in your stock picking skills, however, picking half a dozen solid stocks may be the better route.
Index trackers have the drawback that you are investing in the good and bad performers in the index alike.
Recommend ReadingBook offers!
|
Handbook of Financial Intermediation and Banking
Anjan V. Thakor (Editor), Arnoud W. A. Boot (Editor) |
| Our price: £77.40
Normally: £86.00 |
|
|
The Little Book That Builds Wealth
Pat Dorsey |
| Our price: £9.59
Normally: £11.99 |
|
|
Harriman's Money Miscellany
Stephen Eckett |
| Our price: £6.59
Normally: £9.99 |
