Whenever I talk to my friends about the cryptocurrency market, they all usually express interest in investing, but they’re not sure how to. I always explain to them that the easiest way to start investing in cryptocurrency is to set aside some funds every month and regularly put money into Bitcoin. This strategy is called dollar cost averaging.
What is dollar cost averaging? Dollar cost averaging is a simple investing strategy that ultimately helps you lower the amount you pay for your investment while minimizing your risk.
With dollar cost averaging you buy your investments in smaller amounts at regular intervals, regardless of what the price is, rather then purchasing your investments at a single price point. Doing this can help lower your investment costs and increase your returns over the long term. This also decreases the risk that you might pay too much for an investment before market prices drop.
Through different techniques, traders try to time the market and buy their crypto when their prices are low. Buy low, sell high. This doesn’t always work out as planned.
Regularly investing by dollar cost averaging works because over the long term, asset prices usually will rise. Over the short term however, asset prices have regular highs and lows. These highs and lows should have no affect on you as a long term investor.
Highs and lows can bring out the best and worst emotions. Fear and greed can sometimes get the best of traders. It’s difficult not to buy into an asset when it’s prices appear to be skyrocketing, or to sell when it looks to be dumping. Dollar cost averaging takes the emotions out of investing by having you purchase the same small amount of an asset regularly. This means you buy fewer shares when prices are high and more when prices are low.
From a practical standpoint, dollar cost averaging helps you begin investing with small amounts of money. For example, not everyone will have a large amount of extra funds readily available to invest all at once. Dollar cost averaging gets smaller amounts of your money into the market regularly. This way, you don’t have to wait until you have a larger amount saved up to benefit from market growth.
Dollar cost averaging’s regular investments also ensure you invest even when the market is down. For some people, maintaining investments during market dips can be difficult as they fear the market won’t recover. Some even start panic selling. If they stop investing or sell their existing investments when the markets are down, then they risk missing out on future growth.
Psychologically, dollar cost averaging makes it easier for you to invest portions of a large sum over time. It’s impossible to predict future market drops, dollar cost averaging offers solid returns while reducing the risk. As a long-term investment strategy, dollar cost averaging keeps you in the market and makes you buy even when the market is down.
I recommend to all my friends that if they are serious about investing in cryptocurrency, then it’s as simple as buying and holding. Dollar cost averaging is the absolute way to go because it takes the emotion out of purchasing decisions, especially in down markets, and helps position yourself and your investments for success over years and decades.
That’s all I got for you today! As always, thank you for your time! If you found this post interesting or helpful in any way please let me know in the comments below. Feel free to follow me for more posts on how I invest or how I earn other free rewards such as crypto, stocks, or gift cards. Follow me on Twitter @Seven_NATE_Nine
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*Disclaimer- I am not a certified financial planner/advisor, certified financial analyst, economist, CPA, accountant, or lawyer, or anything important for that matter. The contents of this article are for informational, educational, and entertainment purposes only and do not constitute financial, accounting, or legal advice. Always do your own research.*
