Dollar-cost averaging is a simple investment concept that can seriously build your wealth over time.
A basic example might go like this…
On the same day at the same time every month you invest €500 into the cryptocurrency Bitcoin.
Whether Bitcoin’s price went up or down from the previous month is irrelevant. You would make the same investment at the same time the next month.
There are tweaks to this method, of course. We’ll get into that later. But the thing with dollar-cost averaging is this: it’s simple and it works. You just have to be prepared to give it time.
It’s easy to understand this strategy and get set up with monthly reminders.
Nash is a great place to start, with market-leading fees on crypto purchases.
What is dollar-cost averaging?
In a nutshell, dollar-cost averaging – also known as the constant dollar plan – involves investing a certain amount of cash in the same market at a certain time each month and sticking with it.
You do not “play” the market, guessing when it will go up or down and making your investment decision based on these fluctuations. That’s tough, even for the professionals. You just invest the same amount on the same day every month.
Dollar-cost averaging is pragmatic. It eliminates the need, or desire, to try and understand the markets in question. It also reduces the effects of psychology and market timing on your portfolio.
When it comes to investing, it’s very easy to make rash decisions out of fear or greed: you panic-sell when the market drops and you panic-buy when the market bounces.
Instead of being reactive – mostly in counter-productive ways – dollar-cost averaging encourages you to focus on the amount you invest rather than the price you buy at.
It’s a way to make your life easier.
What else can I do with dollar-cost averaging?
We’ve given a simple, effective example of dollar-cost averaging.
But it gets better.
You can tweak your dollar-cost averaging investment to buy less when the price is high and more when the price drops.
This lowers the risk of making large purchases or large sales at the wrong time.
Just a small tweak in your strategy can make a big difference over time.
And by its “averaging” nature, the longer you choose to use this investment strategy – say, for 5 to 10 years – the better results you are likely to yield.
Does dollar-cost averaging help in the crypto market?
It’s almost like dollar-cost averaging was designed for crypto investment.
Bitcoin can be a volatile mover, as can a lot of cryptocurrencies. Prices can shift dramatically on a daily, if not hourly, basis.
For investors who closely monitor the markets, such dramatic shifts can stir irrational selling or buying motivations that you may later regret.
If you invest equal amounts, spaced out over regular intervals, the price you buy at will likely vary each time. But over the long term, you’ll be getting an average price. That’s how you fight volatility.
In short, using the dollar-cost averaging method when buying cryptocurrency helps you avoid the mistake of making a one lump-sum investment, or major sale, that is poorly timed.
How to set up a dollar-cost averaging investment in less than five minutes
It’s incredibly easy to start a dollar-cost averaging strategy using the Nash app.
- Firstly, decide on an amount that you can reasonably afford to invest every month.
- Secondly, choose an investment you want to hold for a long-term period, say five to ten years.
- Set a reminder on your phone at the same time every month to make your purchase.
- Open the Nash app, whizz straight to your desired market and make an instant purchase.
Now just be patient and watch your investment grow.