If you've been putting off investing because you're worried about timing the market perfectly, pound cost averaging could be perfect for you. This simple approach removes the guesswork and helps you grow your money steadily, without the pressure of trying to predict what the market will do next.
What is pound cost averaging?
Pound cost averaging is the practice of investing a fixed amount of money at regular intervals, regardless of what the market is doing. This approach has been around for decades and was first coined by economist Benjamin Graham in his 1949 book The Intelligent Investor.
Here's how it works: if you invest £500 monthly, you'll buy more units when prices are lower and fewer when prices are higher. Over time, this evens out your average cost per unit, which is why it's called pound cost averaging. The beauty is you're always moving forward rather than sitting on the sidelines worrying about buying at the wrong moment.
Who benefits most?
Pound cost averaging particularly suits people who are new to investing, those with a long-term outlook (typically five years or more), or anyone who gets anxious about market volatility. It's also ideal if you're investing from your regular income rather than a lump sum. Many workplace pension schemes use this approach automatically with your monthly contributions, so you might be benefiting from pound cost averaging already without realising it.
Making it work within your ISA allowance
One of the smartest ways to use pound cost averaging is within a stocks and shares ISA, where your investment growth is completely tax-free. For the 2025/26 tax year, the ISA allowance remains at £20,000. You can set up regular monthly contributions (around £1,667 per month, for example) to use your allowance throughout the year, rather than rushing to invest everything before the 5th of April deadline.
Is it right for you?
Pound cost averaging isn't a guaranteed winning strategy in every scenario. If markets rise continuously, investing a lump sum at the start would theoretically give better returns because your money has more time in the market. However, nobody can predict market direction with certainty.
The real value of pound cost averaging is how it helps you overcome the paralysis of trying to time the market perfectly. It removes emotion from investing and creates a sustainable habit. For many people, this psychological benefit outweighs the potential advantage of lump sum investing.
As with all investments, your capital is at risk and you may get back less than you invest. Consider your time horizon and financial goals carefully.
Ready to start?
If you're looking to build wealth steadily without the stress of market timing, pound cost averaging could be your ideal strategy. Get in touch with our team today on 0345 450 4660 to discuss how we can help you set up a regular investment plan that fits your financial goals and risk tolerance.
