The averaging system for shares
Averaging is a term which has been used by share market followers over the years. This is when an investor buys several shares in the same company over a period of time and the average price which was paid per share may be higher or lower depending on which direction the share price is going.
Here is an example of one New Zealand company, Fletcher Building beginning with January 4, 2023. The first three days of the year were public holidays so January 4 was used as the starting date and every seven days after that.
Date Share Price
4/1 4.71
11/1 4.90
18/1 5.06
25/1 5.11
1/2 5.25
8/2 5.46
15/2 5.07
22/2 4.81
1/3 4.71
8/3 4.65
15/3 4.50
Now let us assume that you had purchased Fletcher Building shares on each of these dates, investing the same amount of money. You would simply add up the totals of these prices and divide the answer by 11. That is the average price you paid for the share. In this case the average price you would have paid for Fletcher Building shares would have been $4.93 if you had bought them every week.
We all know that shares go up and down so drip feeding shares into the market in this way will ensure that you have bought shares at a lower price when they are down as well as when they are on an upward trend.
Online trading platforms such as Sharesies and Robinhood make this process easy. If you have more money to spend you may want to choose two or more companies per year to invest in using this system.
As with other investment strategies you need to ask the question “Where does this fit in with my financial goals?”
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