A Beginner's Guide to Dollar Cost Averaging.
- 3 mins
What Is Dollar-Cost Averaging?
It is worthy to note that dollar-cost averaging is ideal for long-term investors. The goal is to invest a fixed amount in an asset. The doubt, greed or fear associated with short-term investment strategies has no place here.
It is a plan that eliminates emotion-based decisions. Here, you lessen the effect of price volatility by spreading your purchases between intervals.
So, this is what you do, rather than buying a large amount of cryptocurrency. You decide to buy a fixed amount every week, month or quarter, be it in a bull or bear market.
How It Helps in a Bear Market.
For the sake of this example, we will assume that you intend to invest a total of $1000 in cryptocurrencies. So, you will spread your capital over multiple purchases.
Let us say that you have a goal to buy crypto coins over the next four months. In other words, you buy $250 worth of crypto coins per month.
How It Helps In A Bull Market
For instance, you can split $1,000 equally across four purchases, and the prices per share are $50, $65, $70 and $80.
The good side to this for you is that the market is volatile. Who knows, prices may tip in your favour.
What Are the Benefits of Dollar-Cost Averaging?
It helps avoid risks arising from the mistiming of markets;
It eliminates emotion-based investment decisions;
It is suitable for those interested in long-term investments.
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