Cost Averaging is a proven, established investment method and is regularly used by people saving on a regular basis. As opposed to a lump-sum investment, where you require the market to constantly rise (which they never do), Dollar Cost Averaging will work over a longer period of time when markets fall. So, “How can I make money when markets fall”? is the typical question.

Whether you're new to investing or a sophisticated investor, you may want to use Cost-Averaging, a basic strategy favored by many financial experts. The approach takes advantage of Global Finance's only certainty: Bond and stock prices fluctuate. With Cost-Averaging, you make the market's natural volatility work for you by lowering the average price you paid for your Units. All you do is invest equal amounts in a security at regular intervals.

Because the amount you invest remains constant, you are able to buy more shares when the price is low and fewer shares at a higher price. As a result, the average cost per share—and the amount you paid for the shares—will always be lower than the average market price of the shares. There's no magic to it - just simple arithmetic.

Cost-Averaging can help you:

*** Reduce Your Investment Risk. The strategy prevents you from committing substantial assets at the wrong time.
*** Invest Regularly. Many offshore companies offer an automatic savings program to investors. Often it's as easy as setting up regular transfers from your bank account or money market fund account. In addition to providing your savings program a measure of discipline, you'll protect yourself from your emotions - and the natural tendency to cease investing - in a weak market.

Cost-Averaging is especially appropriate for individual retirement accounts or other long-term investments - because the longer you maintain a regular investment program, the more likely you will be to buy shares at a wide variety of prices. Here are some examples:.

EXAMPLE ONE - A market that falls for a long period, then recovers, but never rises above the original price per unit that you have bought.

The investor has a choice. They have $18,000 Dollars and did not know what to do with the market as it was at the moment, so, they decided to look at what would happen if the market fell over a year and never came back above the original price.

At the end of the 12 month period, the person that invested $18,000 their investment remains at $18,000 as the price has not gone up. The person that invested $1,500 per month now has 13,439.15 units and the price of the units are the same as at the start, $1.60 per unit. So the value of the person who saves each month is now worth $21,502.64

Dollar Cost Averaging in this case made the investor $3,502.64 profit -19% growth on their money.

EXAMPLE TWO - A market that falls for a sustained period and never rises.

The investor has a choice. They have $18,000 Dollar and did not know what to do with the market as it was at the moment, so, they decided to look at what would happen if the market fell over a year and never came back above the original price.

At the end of the 12 month period, the person that invested $18,000, their investment has dropped to $12,375 as the price has continually dipped. The person that invested $1,500 per month now has 13,840.54 units and the price of the units are $1.10 per unit. So the value of the person who saves each month is now worth 15,224.59

Cost Averaging in this case saved the investor a drop of $2,849.59

In times of a falling market, Dollar Cost Averaging reduces your exposure to risk by allowing you to purchase units at an averaged price.

Keep in mind though that Cost-Averaging does not ensure you a profit or protect you against a loss in declining markets. You should also consider your ability to invest continuously through periods when the market is down.Ultimately, to see whether the Cost-Averaging method of saving suits your own particular needs, we always suggest that you consult a professional Financial Advisor.