▶️ The Golden Investing Strategy: Dollar-Cost-Averaging | EP#378
There are so many ways to invest. But what is the most effective way that takes the least amount of effort and brings the best return on average? I believe dollar-cost-averaging is the golden investing strategy to standby. Let me tell you why.
The Investopedia definition for dollar-cost-averaging is as follows: “Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals.”
In short, you’re taking your money and investing it regularly like once a month regardless of price and circumstances assuming the investment is a solid long-term one in order to reduce the volatility that you would otherwise experience from trying to time your investments. It also takes out a lot of the extra work needed to try to time the market.
One very important thing to consider is even with timing the market perfectly, outside of big changes in the market, you may not even make more money than someone who dollar-cost averages into the market who is using less effort and time to do so.
When you’re holding onto your money, your money is losing value from inflation, the stocks you could have otherwise bought won’t appreciate in value, pay dividends, have dividends increase, or compound interest with reinvested dividends thus losing out on many ways to appreciate their wealth. The only benefit of having a lump sum is to take advantage of huge market dips as we’ve seen recently.
But because these are sometimes once in a lifetime opportunities in the market, there is no way to prepare for or time these crises, but of course, having some money set aside to buy the dip is going to make you a lot of money. The problem is you never know when these things are really going to happen. People have been saying the stock market can’t keep up going up and it must crash soon for the past 10+ years.
The biggest issue with not dollar-cost averaging is people could use the excuse of wanting to time the market to never invest at all and end up with much less wealth. You must also consider that most of the people trying to time the market has little to no experience or insight on how to actually do that and are more or less gambling. To lessen risk and get the most out of your investments, I suggest dollar-cost averaging which is what I’m doing with cryptocurrency investing as well as when investing in the stock market. Of course, you should take advantage of dips and invest more if you can, but never use timing the market as an excuse to do nothing.
How do you invest? What’s the best investment strategy? Are we in the second wave now? Have we yet to see the second wave? Let me know in the comments below and don’t forget to like, share, and subscribe as well!