In this episode of BeInCrypto’s Video News Show, host Juliet Lima looks at the fundamental investment strategy of dollar-cost averaging (DCA).
DCA is a simple, effective approach that even seasoned traders continue to utilize for large segments of their portfolios.
While the biggest benefit of dollar-cost averaging may be that it removes emotions from investing, it also spreads out risk more evenly and enables users to benefit from dips.
For many people, it can be difficult to know where to begin when it comes to investing. With crypto markets maturing over the past year, many have taken to exchanges only to get stuck with the practicalities of how much to invest in, what to invest in, and when. If this sounds familiar, then dollar-cost averaging might be worth considering.
Fortunately, DCA is simple. Rather than making large, riskier purchases at moments of perceived opportunity, which are amplified by crypto’s volatility, DCA involves making consistent, manageable purchases over a longer period of time.
Although buying without regard to the current price can seem somewhat counterintuitive, the key here is consistency.
If someone has $1,200 dollars they want to invest in cryptocurrency, with DCA they would simply divide that amount and invest it over time. For instance, investing $100 every month for the next 12, or $50 a month for the next two years.
What is important is to invest the same amount of money into the market at regular intervals and to make that investment regardless of the price.
Pros and cons of dollar-cost averaging
While the biggest benefit of dollar-cost averaging may be that it removes emotions from investing, it also spreads out risk more evenly and enables users to benefit from dips.
However, this consistency and peace of mind come at the expense of missing larger price swings, which have come to be a primary draw for many crypto investors.
Ideally, one would make a large cash investment at the beginning of a bull run. Also, as a higher-frequency trading strategy, DCA can lead to higher trading fees, but these should be mitigated in the longer term.
For those interested, major crypto exchanges such as Coinbase and Binance currently offer an auto-invest option, while others like Cash App, Swan Bitcoin, and Strike only offer auto-buy for Bitcoin.
You can select the amount you want to buy and the frequency.
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