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Most people are not as disciplined as
they would like to be when it comes to saving and investing. They may
save some money for some months and nothing at all for several others.

Yet for the vast majority of people,
the only way to achieve your financial goals is by earning through hard
work and saving and investing in a systematic and disciplined way over
several years.

Cost averaging, is a simple approach to
saving that helps you to save regularly whilst at the same time
building long-term financial security. It involves investing a fixed
amount on a regular basis rather than a lump sum, even when your
finances are stretched, and no matter what the market is doing. This
could be monthly, quarterly, or whatever suits you; you do not have to
time the market or look for the best entry point, you just invest
regularly.

It is almost impossible to time the
market as it is challenging to anticipate correctly its peaks and
troughs. For the average investor, and particularly for the smaller
investor who does not have lump sums to invest, what is required is an
investment strategy that allows you to maintain an even keel in rising,
fluctuating and falling markets.

Cost averaging accomplishes this and if
you can manage to apply this strategy to even a small amount of money,
with ease and efficiency, you will have a better chance of achieving
your goals.

Cost averaging is a particularly useful
tool in a choppy market as it provides a buffer for volatility. Even
though the value of your overall investments will fall as stock prices
fall, remember that you also bought more shares at lower prices. As you
will bed rip-feeding your funds into the market at different times, you
will be picking up investments at a range of prices; this reduces your
overall average cost.

Pay yourself first

Determine how much you can afford to
set aside each month. The amount you choose will depend on your own
particular situation. This could be a fixed amount each month that will
not change, or you might prefer to invest a percentage of your income,
sothat you invest more as your income increases; try to invest at least
10 percent of your income for your financial future.

What are you saving towards?

One critical factor to saving is,
knowing what you are saving towards. If you aresaving without any clear
purpose, you will eventually be tempted to dip into those savings to
satisfy your wants. If you have no savings whatsoever and currently
live from salary to salary, this is a good place to start. You need
short-term savings so that you are better prepared to deal with
unexpected expenses or emergencies. Start to build enough savings worth
about six months of your routine expenses. You also need to be
investing so that you can meet your medium to long-term goals such as
educating your children or being able to secure a comfortable and
fulfilling retirement for yourself.

Automate your savings

A most effective way to save is to put
it on autopilot so that you don’t have to think about it. If you are in
full time employment, your employer will already be withholding 7.5% of
your salary and transferring it to your Retirement Savings Account
(RSA) with your Pension Fund Administrator (PFA) on your behalf. This
is probably the most popular form of investment automation. And because
the money is removed at source, you are less likely to miss it.

But do not stop there. In addition to
your RSA you may set up a direct debit from your current account each
month and have it credited to an interest bearing account or an
investment account, such as a mutual fund. There are money market
accounts, mutual funds, and a variety of other investments that allow
you to designate a specific amount on a regular basis. Nowadays,
brokerage firms and banks have made the process so simple that you can
easily have your finances automated in a matter of minutes; and you
only need to set it up once. You then determine how much you want
debited each month and how frequently you want the withdrawals to
occur. You can usually even specify the date on which the withdrawal
should occur.

Automatically reinvest your dividends

You can also opt to automatically
reinvest your investment profits or dividends. For example, when you
sign on to a mutual fund account that makes periodic distributions, you
are given the option to re-invest your dividends by acquiring more
units in the fund before it enters your account. The fund manager is
authorised to automatically take that money and use it to buy
additional shares of the same fund instead of making it available for
you to withdraw.

While cost averaging can be a very
effective way to systematically build your portfolio overtime, it is
important to realise that there is no guarantee of profit; neither does
it prevent loss. Take a cursory look at your financial situation and
assess whether you will be able to contribute to your investment
account on a regular basis. If you are able to achieve this, remember
that even though the objective is to automate your finances, you should
continue to monitor your investments and make adjustments as required
and as your financial situation evolves.