Peso cost averaging is one of the easiest strategy you can use when you start investing. If you’re a beginner like me, I encourage you to read and understand the information I will share below to give you basic and fundamental knowledge about investing using peso cost averaging method.
What is peso cost averaging?
Before we move on, let’s take a look at the meaning of peso cost averaging. In a nutshell, peso cost averaging is an investing strategy where you invest the same amount of money in a regular schedule over long period of time.
This means that you’re going to commit and discipline yourself to invest exact amount of money on a regular basis like monthly, quarterly, semi-annual or whatever schedule works for you no matter what.
Let’s say for example, you’re committing yourself to invest P5,000 in the stock market monthly and purchase Megaworld stock (MEG) for the next 10 years. This means that whatever the market situation is, you’re still buying P5,000 amount of MEG on set schedule. No reasons and no excuses.
As mentioned, this simple strategy requires discipline and commitment.
The objective of peso cost averaging is to lower the total average cost per unit/shares of the investment. In the example above, you’ll accumulate more shares and lower the average cost in the long run since you are buying on a regular schedule (monthly on the example).
Along the way if on some months the price of MEG is low, you’re accumulating more shares and if on other months the price is high you’re buying few shares reducing the risks of buying MEG at the higher price. Since stock market is volatile (up and down) you’ll be accumulating more shares over long period of time while lowering the average costs per unit/shares of MEG.
And when the time comes that you need to redeem/sell your shares, given that the stock or investment you chose grow, you’ll realize more gains and growth.
That is why it is also important to carefully choose or identify what stocks/shares or investment will grow over time.
In peso cost averaging, it is advisable to choose stable companies or blue chip companies if investing in stock market using peso cost averaging. These companies can go long way and stand whatever economic situation our country may encounter.
Example of peso cost averaging strategy
To give you more details and illustration, I’m attaching a research from my stock broker(COL Financial) through their EIP program. EIP stands for Easy Investment Program provided by COL Financial for those who want to invest in stock market using peso cost averaging method.
Note: Here’s an article covering how to invest in stock market aumatically via COL’s EIP program.
The table above shows peso cost averaging method over the course of five years. As you can see all selected (example) stocks are giant companies here in the Philippines or what we called blue chips.
By using peso cost averaging or EIP of COL Financial, you’re able to acquired more shares while lowering the average price per share along the way given that you invest regularly on schedule.
This shows that peso cost averaging method is a great investing strategy especially for beginners and those who don’t have time to monitor stock prices regularly. Peso cost averaging can really help your money grow.
If you are just starting to invest like me, I strongly suggest you apply the peso cost averaging method. It’s applicable whether you’re investing in mutual funds, uitf or in stock market. This can really help your money grow without too much effort and complexity on your end.
You can focus on your day job and the things you love to do while growing your money. It’s a great way to start achieving your financial goals!