Benefits and Drawbacks of the Cost Average Plan as an Alternative Investment Strategy

This note compares three different investment strategies for long-term investment plans: a Cost Average Plan (CAP), a monthly deposits plan, and the Buy and Hold strategy. Using data from January, 2003 to December, 2022 from four European Monetary Union countries, France, Germany, Spain and Ireland, we compare the empirical evidence and we reach the conclusion that CAP usually outperforms a bank deposits plan, but underperforms against the BnH strategy (in terms of returns). Thus, CAP could be considered as a possible investment strategy for investors who do not have a significant amount of money to invest in financial markets, e.g. young people, parents when their children are born, etc.. Moreover, as the Max-Drawdown risk measure shows, the CAP strategy bears significantly lower risk than the BnH