What is Dollar Cost Averaging? The “Set and Forget Investing” Explained
Dollar Cost Averaging, or "Set and Forget" investing, is an investor's greatest tool. Learn it, apply it, enjoy it.
Crypto prices can move a lot. Even the least volatile coin in the market (i.e. Bitcoin) could swing 5% up or down in a single day! Trying to pick the exact top and bottom is almost impossible.
So, how can investors deal with this? Well, one approach is to forget about timing the market, as it’s too impractical for an average investor. Instead, buy at regular intervals so that you buy at an “average price” over a longer timeframe.
Investing using the “Set and Forget” principle
What I just described above is investing using the Set and Forget principle. Big institutions use it. Legendary stock investor Warren Buffet uses it. Many investors have begun to see the value of that investing principle too. So, there’s plenty of reasons to try it.
“Set and Forget” investing, also known as Dollar Cost Averaging, or DCA for short can work very well for long term investing in crypto. For one, DCA could make your life less stressful when it comes to investing.
It works because it’s simple.
As you have already done all the research by selecting what to purchase when setting up your auto buy , you can avoid the roller-coaster of emotions that staring at charts and trying to pick a time to buy can bring. Just let the market work its magic while you get on with your day job. Too Easy!
How does Dollar Cost Averaging work?
If you have $1000 to invest into crypto, you have two options. A) Invest the entire $1000 today, or B) Invest $100 per month for 10 weeks.
Because the market ranges up and down over a period of time, Dollar Cost Averaging gives you the chance to buy at low, medium and high prices, with the principle being it evens out.
By splitting the investment into 10 chunks, you have the chance of getting the best average buy price for that asset.
Dollar cost averaging can be particularly powerful if you are investing for the long term as it may help take out the price swings as you might get some at a higher price one week and a lower the next.
If you’re still unconvinced by the power of Dollar Cost Averaging, head over to this article to get to the science behind it — Dollar Cost Averaging Simulation
Selling using Dollar Cost Averaging
Well guess what, you can DCA out of a position too. Once your asset has hit your desired price levels, you can simply sell a percentage of your holdings on a regular basis.
The advantage of selling using DCA is that you allow your assets more time to appreciate (if and when they do), while securing some profit for yourself.
Go ahead and give Easy Crypto’s Auto Buy feature a go and see if it could make your investing lifestyle so much easier.
Important: Investing involves risk and digital assets are volatile. You aren’t guaranteed to make money from your investment. Past performance is not an indicator for future returns.
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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
Last updated October 25, 2022