Jenny Vonäsch, Market Manager Investment Solutions at PostFinance, explains in 45 seconds what the cost averaging effect is.

Well done, Jenny! Explaining the cost averaging effect is not an easy task – and certainly not at that speed. So here’s an in-depth explanation of the cost averaging effect once again:

Definition: How the cost averaging effect works

The cost averaging effect (sometimes referred to as unit cost averaging) comes into play whenever investors regularly invest the same amount in securities. The best example of this is the funds saving plan  In simple terms, a funds saving plan is a standing order for investment in a fund. As with a standing order, you decide whether you wish to contribute fortnightly, monthly, every two months or quarterly. This can be done starting at CHF 20 per inpayment. You can also change (e.g. the amount paid in) or cancel the order at any time.: investors pay in CHF 20 each month to buy fund units. They receive more units in months when the prices are low and fewer units in months when the prices are high. The cost averaging effect equals out price fluctuations and reduces the risk of choosing a bad time to start investing and being in danger of overpaying for the investment assets as a whole.

You can find out more about the cost averaging effect and funds saving plans in the article «How you can benefit from the cost averaging effect with the funds saving plan».