In the world of investing, there are various strategies to navigate market uncertainty. Dollar-cost averaging (DCA) is an investment strategy that has gained popularity among seasoned investors. DCA as an investment strategy provides a systematic and disciplined way to build wealth over time by spreading investments to try to reduce market volatility.
In this comprehensive guide, we will explore the concept of dollar-cost averaging by covering its benefits, drawbacks, real-world examples from renowned investors and how it is utilized by crypto investors. We will also provide practical tips on getting started with dollar-cost averaging and achieving your financial goals using the Bake mobile app.
Dollar cost averaging is a strategic investment approach where you consistently invest the same amount of money into a particular asset at regular intervals, regardless of its price. This strategy aims to reduce the impact of volatility on large purchases of financial assets (such as stocks, exchange-traded funds and mutual funds), helps minimize the impact of short-term market fluctuations and allows investors to benefit from long-term growth potential.
The main goal of DCA is to avoid buying the asset at its peak price and then suffering from a sudden drop in value. By spreading your purchases over time, you can smooth out the price fluctuations and reduce the risk of timing the market incorrectly. DCA also helps you overcome emotional biases such as fear of missing out (FOMO) or fear, uncertainty, and doubt (FUD) that can lead to impulsive or irrational decisions.
To use DCA in crypto, you need to decide on three main factors: the amount you want to invest, the frequency of your investments, and the cryptocurrency you want to buy.
For example, you may choose to invest $100 into bitcoin every week for a year. This means that you will buy $100 worth of bitcoin every week, regardless of its price at that time. By doing so, you will accumulate more bitcoin when the price is low and less when the price is high.
To illustrate how DCA works in crypto, let us look at an example using historical data from a popular cryptocurrency price tracker - CoinGecko. Suppose you started investing $100 into bitcoin every week on January 1st, 2018, and continued until December 31st, 2022.
During this period, you would have invested a total of $26,100 into bitcoin. However, your bitcoin holdings would be worth $138,546 as of December 31st 2022, giving you a return of 430%. This is because your average purchase price would be $17,100 per bitcoin, which is much lower than the final price of $29,623 per bitcoin.
On the other hand, if you had invested a lump sum of $26,100 into bitcoin on January 1st, 2018, when the price was $13,860 per bitcoin, you would have bought 1.88 bitcoins. As of December 31st, 2022, your bitcoin holdings would be worth $55,713, giving you a return of 113%. This is because your purchase price would be much higher than the average price over the five-year period.
As you can see from this example, DCA can help you achieve better returns than lump sum investing in crypto by lowering your average cost per unit and allowing you to benefit from the long-term appreciation of the asset.
There are several advantages associated with using DCA in crypto:
Given these compelling benefits, it's no surprise that many successful investors embrace dollar cost averaging as their preferred strategy. Notable names in the investment world who have endorsed dollar-cost averaging include:
Despite its many benefits, there are also some drawbacks and limitations of using DCA in crypto:
Investors need to weigh the pros and cons and consider their individual investment goals and risk tolerance before deciding to adopt dollar cost averaging as their investment approach.
If you are interested in using DCA in crypto, here are some steps you can follow to get started:
Starting 01 August 2023, Bake mobile app users can easily buy their favorite cryptocurrencies on a monthly recurring basis. DeFiChain (DFI) is the first cryptocurrency available for this option, but stay tuned for updates on what other coins will be supported soon.
Why choose the recurring buys option? Some of the benefits you’ll get to enjoy include:
For more details, please check out the table below. If you want to be a member of ELITE and enjoy the additional bonus and other exclusive benefits, please go to our ELITE page.
Another good reason to use the recurring buy option is that it qualifies you to participate in our “Baking Hot Summer Giveaway” promo.
Running from 01 August 2023 to 01 November 2023, this promo allows you to collect tickets that will be entered in a lucky draw in which winners get a chance to win amazing prizes - including a brand new Tesla.
To join, simply use the recurring buys option on the Bake mobile app to earn tickets. You can also earn more tickets by inviting your friends to sign up for a Bake account and join the promo. You’ll not only get more tickets if they join the promo, but also referral commission for every successful sign up.
For information on the promo mechanics, prizes and other details, visit the “Baking Hot Summer Giveaway” promo page.
So, what are you waiting for? Visit our product page to start dollar cost averaging with Bake.
DISCLAIMER: Please note that the information on this blog and in any articles posted on this blog is for general information only and should not be relied upon as financial advice. Cake Pte. Ltd., Cake DeFi, UAB, and its affiliates (the “Cake Group”) are not licensed financial advisers. You may wish to approach your own independent financial advisor before making any decision to buy, sell or hold any product and/or digital assets mentioned in this blog.
Any views, opinions, references, assertions of fact and/or other statements are not necessarily the views held by the Cake Group. The Cake Group disclaims any liability whatsoever that may arise out of or in connection with such statements. Always do your own research before investing in any financial assets and consult a qualified financial advisor if necessary.