Hello Blurters
You are welcome to my post. In this post, I have discussed about Dollar Cost Averaging (DCA) with an example that will help us to understand the word more better.
What is DAC?
Dollar Cost Averaging is an abbreviation that is use to describe the words DCA. It is an one of the Investment strategy that Investors, traders use in the crypto or forex market to distribute capital to an asset(crypto) over time. In a nutshell, Dollar Cost Averaging (DCA) is a strategy that Investor follow to invest a total amount of money in small increments over a given period of time (i.e investing bit by bit for over a period of time) as opposed to investing all his/her capital all at once.
We can now see that Dollar Cost Averaging (DCA), is a strategy that helps Investors or traders like you an I to negates the effects of short term market volatility. The strategy is also helps Investors/traders to accumulate enough welth and build one stream of investment capital.
DCA helps us not to spend our capital (money) all at moment where the asset might become bearish. Let's say that for instance, you want to buy an asset and the price of the asset drops down at the time you are dollar Cost Averaging (DCA), then you have a better chance of making profit from the asset if the price moves up.
Dollar Cost Averaging is one of the best strategy that I do recommend for anyone that is till learning how to trade or want to be a good Investor.
The reason why I do recommend DCA is that it save your time from monitoring the market in order for you to buy the asset at the best price.
Since you have now known what DCA means. Let's now practically look at it using an example below for a better understanding.
For a clear understanding, let's say that John is an accountant who earns $5,000 in a month. In late 2021 he heard about Blurt and he decided to invest 10% of his monthly salary which is ($500) into Blurt. Now since Mike is already aware of DCA, he settled on sharing his allocation (Investment) in each of the week.
Now with $500, Mike bought Blurt worth $125 in each of the week that pass. John continues buying using his DCA understanding for the whole year and ends up spending $6,200 as the total amount he spent in purchasing Blurt in a year. Now this means that at the end of the year Mike Investment turns into $8,000 which he has gain over 32.7% percent.
Now still on our exampe, had it been Mike had follow the same strategy earlier before 2021, John would have make over 109% after turning his $6,200 into $12,638.
Again I'd like continue the same strategy, he would have turned his $12,638 to about $41,243, which is a good some of money.
From the example of John above, it has make us to understand that dollars cost averaging is some that keeps on giving us double of our money, and I will advise to think about it and make a proper research about DCA.
How to Increase your portfolio using Dollar Cost Averaging (DCA)
In order for you to be able to increase your portfolio Investment using DCA there are three things you ought to know and follow which are;
- The asset you are to buy
- How much you're to invest
- At what period you're to buy
Let's start by looking at them serially.
The asset you are to buy:
There are a lot of us that are afraid of taking risk.
The best thing is to spent little first and research on the cryptocurrency you want to buy. Let's for instance, while researching you then now find out about a cryptocurrency that are widely known and has a huge market capital like Bitcoin (BTC), Ethereum (ETH) and Solana which are all cryptocurrency that performed very well and you invest you money in any of them.
The probability of you earning a reasonable amount of profit is very high than you investing on a cryptocurrency you don't too know much about.
How much you're to invest
After knowing the asset you want to invest in. The next is for you to make sure the capital that you want to use for your Investment is ready. Firstly, you need to decide how much you can allocate into your portfolio (i.e invest in what you can afford to lose). At this point, it is good and advisable to use the strategy of that of Mike from our exampe above.
At what period you're to buy
After getting your capital ready,what you should know is the fixed interval of time that you should be buying. A lot of traders/Investors usually buys they crypto on week basis. Whereas as some love buying at the end of the months when they had been paid. Buy when the asset is relatively low so you can make a good profit when it's high.
Conclusion:
DCA is a good strategy for we to buy cryptocurrency using a relative low amount of capital and gain Profit.There are a lot more to understand about dollar Cost averaging (DCA). But it will be best if will can be taking our lessons gradually than trying to finish it once. So to this we have to end of today tutorial on DCA