Term: AVERAGE COST

A method of valuing shares in a portfolio at the average of what they cost. For example, if 100 shares are bought for 100 cents each and then a further 100 of the same shares are bought for 150 cents each, the average cost would be 125 cents per share. So if a share is falling and an investor is continuing to buy as it falls, he could say that he is “averaging down”. The unit trusts often invoke this logic to persuade people to buy their products on a regular monthly basis even when the market is falling.

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