And averaging buying

And averaging buying, and increased buying in aspects of stock price will fall to lower the average purchase price, it is a method of investing that easy profits.

As an illustration of the averaging buying, for example I will Company A strains of stock price ¥ 1,000 and had 100 shares. Its A Shakabu is Suppose the drops to 800 yen To loose. When this 200 yen worth (25%) remains not rise, it does not return until the break-even point (Puramai zero).

However Referring now newly increased buying the A Shakabu 100 shares, you will calculate you have 200 shares at 900 yen total in "1000 × 100 + 800 + 100". Then A Shakabu will Puramai zero if the rise to 100 yen (12.5%).

Thus averaging buying is, in order to return the stocks that have temporarily fallen into negative to positive territory, it can be said that a very effective way. But there are also drawbacks to averaging buying. To the additional investment in one stock, it will be out biased to the portfolio, it is also a problem.

In the above example, but initially was investment of 100 shares = 100,000 yen to A Shakabu, in averaging buying it has increased to 200 shares, you will calculate you have to invest a total of ¥ 180,000. Although prospectus as Company A shares should I Kurere to rise, if more drops until if 600 yen, and that lived in the 40,000 yen of debt if initially, it faced a debt of ¥ 60,000 in averaging buying wind up I fall into. If by any chance A company once you bankrupt, loss of ¥ 100,000 is I will be to expand to 180,000 yen.

That is averaging buying of problems, in order to become concentrated assets in one of the brand, is located in that risk increases. Therefore averaging buying, rather than the investment of individual stocks, mutual funds or ETF such as, is safer to be carried out in products that reduces the risk to diversified investment to advance a number of stocks.

By the way, for example, the index investment and defined contribution pension, I called every month dollar cost averaging method investment to a certain amount of money funding. Dollar cost averaging in the decline phase of the stock price, it means that you buy in a lot of the number of units at a low price, it will result in the same effect as averaging buying.