Investing for Beginners 101 — The power of Dollar Cost Averaging
Investing for Beginners 101
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How do you build your investment fund?
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There is no silver bullet to it, and it is easy when you build it across an extended period of time.
Introducing the power of Dollar-Cost Averaging ( DCA )! One of the easiest ways to get started.
DCA is an investment strategy in which you purchase an asset over an extended period of time, to average in at a good price while avoiding the volatility of the market.
This strategy proved to be quite effective for both novice and experienced investors.
How do you do it? Let’s start with the easiest strategy.
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Let’s say you want to invest 1000$ in bitcoin in one month, and you want to scale in twice per week, on Wednesday (W) and Friday (F).
What you would do is divide the 1000$ by 8 (2 times per week over 4 weeks), and you would purchase 125$ on Wednesday and Friday.
You’ll end up with 1000$ worth of BTC by the end of the month.
Here’s another example.
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You want to invest 1000$ in bitcoin for one month period, and you want to purchase daily:
You end up splitting 1000$ by 30, and you’d purchase 33$ every day until the end.
The trick here is finding the most optimal strategy, and calculating your average price.
DCA aims to avoid making the mistake of making one lump-sum investment that is poorly timed with regard to asset pricing Investopedia.
There are multiple strategies for DCA’ing into an asset. One way I do it is the following:
After every successful trade, I invest 20% of the profits in both #Bitcoin or #Ethereum (equal split) and transfer another 10% $USDT over to my fund.
Why is DCA effective?
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It removes the burden of buying at an optimal price and averages your whole purchases.
Here’s a real example of how I did it at some point.
I purchased on average 24$ worth of $BTC daily in the 9000–9400 range. Now notice that the average price I scaled in: 9175. While the price reached as high as 9400.
Instead of purchasing 1 bitcoin at 13K for example, think how much you would save if you invested while the price fluctuates with time between 11K and 13K . That’s a lot.
DCA works best when the price will eventually rise in the future. And you can truly reap its benefits on a macro scale.
One last note, you do not trade with your investment fund. It’s best to leave it for years to come, and DCA’ing over multiple years into an asset that will increase in price in the next 10 years is the surest way to maximize your exposure to it.
Hope you enjoyed this thread! Until next time 🙂