Cost averaging is a wealth-building strategy that involves investing a fixed amount of money at regular intervals over a period of time.

Cost averaging allows one to buy more shares when market prices are low and fewer shares when the market prices are high thus effectively bringing the average purchase cost down.

Cost averaging also maximizes the compounding gains over a period of time and eliminates the need to decide when to buy and at what price. Therefore, it reduces market risk by stretching out the purchase of stocks in small amounts rather than in a one-time lump sum investment.