Sirwin
Sirwin

Investing Strategies: Dollar-Cost Averaging


“The individual investor should act consistently as an investor and not as a speculator.” — Ben Graham

Basically, Dollar-Cost Averaging, or DCA is investing a fixed amount of money into something in recurring intervals over a set period of time or regularly. Contrary to buying in at highs or lows or any single price point, dollar-cost averaging practitioners buy at any given value; The price is left to the timing of the buying schedule. For example, an investor might  buy $500 worth of the same thing every week.  

A Respected Strategy

DCA is often viewed as one of the safer and more reliable strategies. Investing over time, not discriminating against any price, offers the investor a higher chance of gains, and this method is also seen as a safety net to avoid loss and volatility. The market is not the easiest thing to predict. 

Some price fluctuations are somewhat predictable when news on companies or their representatives comes out. However, the volatility in the market remains. Dollar-Cost Averaging gives stability to the investor in lowering the risk of loss and increasing the chances of gains, especially if the values trend in an upward direction overall. You can end up buying at an all time high, but the other investments made at lower prices, especially in “the dips”,  can balance out the loss. Moreso if you’ve held a long time. Plus, if there’s room to grow in the investment, the ATH buy can theoretically become a purchase price that sees value increase. 

HODLing and HODLers

This investment strategy is one for long time investors. The HODLers. If you choose to go with Dollar-Cost Averaging, you will see some good buys and bad, some losses and gains. It can be a roller coaster, but the consistency in investment can most certainly see growth over time. Investing long term is riding the fluctuation of the stock prices; one should always take due diligence in picking  their stocks and investments. 

Dollar-Cost Averaging Growing Portfolio

In a sense, DCA is a twist on value investing, where both have the long-term in mind. Value investor Warren Buffet would even say to continually invest in these holdings. Might as well build more capital from something that remains continually in your portfolio. Dollar-Cost Averaging is respected as a reliable strategy amongst some of the greatest investors including Buffet and his mentor, Benjamin Graham.

However, some are against this strategy. Some would say that the chances of buying low are the same chances as buying high. Tipping the scale of optimism to the side of pessimism. More investments mean a higher chance of loss to some people. 

To Conclude

Dollar-Cost Averaging isn’t for everyone. Most certainly not for those seeking a quick return. HODLing is a must as well as picking the right investment. Research is always good in choosing where to put your money. Once you know your investment, it can be easier and less stressful to make a recurring investment. Although criticisms exist, his strategy is great for avoiding risk, and seeing consistency, rather than volatility. Supported by master level investors, DCA isn’t a bad way to go. NFA.

 

Written by SMH from ofthefreemarket.com on June 15, 2021

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OfTheFreeMarket

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