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Are you getting serious about investing this year? Have you heard about dollar-cost averaging, but you’re not sure what it involves?
Over 65 percent of American investors have expressed regrets about their investment strategies. Having an investment plan is one way to solve their problem.
If you’re looking for a new investment strategy, consider trying dollar-cost averaging. Here’s a quick guide to help you understand if dollar-cost averaging can work for you.
What Is Dollar-Cost Averaging?
Dollar-cost averaging (DCA) is an investment strategy that recommends investing equal amounts of money at regular intervals, regardless of the fluctuations in the market.
It’s a simple and effective method that many investors have used over the years to add to their investment portfolio.
The goal of using DCA is to reduce the price volatility of the asset you’re purchasing. Over time, as you buy small amounts at different prices, you end up with an average cost for your asset.
What Are the Benefits of Dollar-Cost Averaging?
The main benefit of this investment principle is removing the emotions of greed and fear from your investing decisions. When the market is high, you won’t hesitate to make your investment, concerned that you’re buying an over-priced stock.
When the market drops, it won’t concern you. With other strategies, people try to time the market and buy at the lowest price. When you invest automatically it saves you time as well.
When you set up the dollar-cost averaging strategy, you commit to making regular purchases at set intervals. It’s easy to automate, which is another one of several dollar-cost averaging benefits.
When you use DCA, you can avoid the mistake of buying your investment in one lump sum at the wrong time in the market. Investors who use DCA as an investment strategy will tend to lower their cost basis in the end.
That results in a lower loss if they sell when the market is down. It also provides a higher gain if you sell when prices are up.
Dollar-Cost Averaging Example
You may be able to have your employer deduct a specific amount from each paycheck and make a contribution to an investment account on your behalf.
Then you can set up an automatic purchase from your investment account. A system will make automatic purchases at different prices. That gives you an average cost in the end.
You can put your investments on autopilot at investorcrate.com. It’s a flexible option that you can use with individual stocks or with pooled assets such as mutual funds or indexes. It’s also possible to purchase crypto using this strategy and make automated investments in gold or silver.
Use Dollar-Cost Averaging to Increase Your Wealth
Now that you have more information about dollar-cost averaging, you can see how it can improve your portfolio. When you add this strategy to your investment plan, it creates a process that allows you to invest automatically.
Did you find this article helpful? If so, be sure to use the simple search feature on our website to find more information on investing strategies.
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