Safe way to buy shares

When well-known actress Chalita "Nan" Fuang-arom, 32, began thinking her career might not always generate income in the years ahead, she looked to investing in alternative sources of income.

"My father did not care much about investing in stocks, bonds or even insurance before. But we're lucky that my mother's family has been very much focused on saving money ever since I was very young. We share our views on money matters with people close to us," she said.

So far, she has bought government saving bonds and saving insurance.

About 14 months ago, Sicco Securities convinced her its "Easy Wealth Builder" instrument suited her. It is a product that applies a "cost average" strategy, which is suitable for people who do not know much about stocks.

"This [cost-averaging] is good for people who don't have time because they are busy with their work," Chalita said.

The actress chose to invest in two stocks - Siam Cement and Thai Plastic - and has earned about 12 per cent in the past 14 months.

But what is cost-averaging? It is an investing technique aimed at reducing exposure to risks associated with making a single large purchase.

The idea is simple: spend a fixed amount at regular intervals on a particular investment or portfolio/part of a portfolio regardless of the share price. In this way, more shares are probably purchased when prices are low and fewer shares when prices are high. The premise of cost-averaging is for investors to be guarded against losing on stock value shortly after making an entry. When spread over a period of time, this method is deemed rather prudent.

Why is it recommended? The strategy is an investment choice for anyone wanting to beat inflation, which will help save the value of money from being completely eroded by skyrocketing prices. It is beneficial to investors with no time or limited financial knowledge.

Although the returns Chalita made may be lower than those of some investors, she has taken a lower-risk approach to building up a stock portfolio. This means she will likely suffer fewer losses than with the conventional method.

Cost-averaging is a good alternative for any investor wanting to diversify risk. The strategy favours a systematic way of buying rather than one that relies on emotion. It has been firmly proven that overall cost is relatively low, and the returns are likely to be higher in the long run compared with buying shares in one go. Moreover, it is quite an appropriate method for those wanting to use a more disciplined way of buying stocks. It is also a forced-saving way to use money at regular intervals to buy stocks and suited to people with limited capital.

Can you do your own cost-average investment? Investors can plan their own cost-averaging programme themselves if they have firm discipline and can avoid being shaken up by daily price fluctuations. Sometimes, the plan is not followed through, and there are painful consequences.

Indeed, investors have the option of delaying a purchase on the scheduled day if they see the stock climbing to high levels.

Say an investor plans to spend Bt5,000 on a stock each pay-day and carries out the plan for the first two months. But in the third month, he sees a big jump in the stock price and decides to hold off for a day in hopes it will drop down the next day. But it does not and rises even more. He waits another day and it rises even more.

In the end, he ends up buying the stock at quite an expensive price. That is the danger when one breaks with discipline and compromises on cost averaging.

Where can I find a cost-average investment tool? Both stock and unit-trust investors can use the method that is employed by many funds' securities companies with different conditions.

For example, Sicco Securities and Phillip Securities offer a service for a minimum monthly payment of Bt1,000 for selected stocks.

One Asset Management's Automatic Millionaire Programme allows investors to pay Bt2,000 a month for selected mutual funds with a goal of Bt1 million in the future.

Kasikorn Asset Management provides the K-Saving Plan for a minimum payment of Bt500 per mutual fund.

Ayudhya Fund Management recently introduced a tool for investing in its AYF Dividend Stock Fund, with a minimum monthly payment of Bt10,000 for 12 straight months.