When building and maintaining an investment portfolio there are a few golden rules for long-term success, one of them is dollar cost averaging. Dollar cost averaging has historically been associated with shares but with the rise of crypto, it has proven to be an ideal technique to safely and effectively accumulate your chosen digital assets.
What is dollar cost averaging?
When investing, dollar cost averaging is the idea that you want to average out your investment by buying a fixed amount of an asset on a regular basis. By regularly buying a chosen crypto, you are more likely to purchase more when prices are low and fewer when prices are high.
How does it work?
Generally, dollar cost averaging is done with weekly or monthly purchases. You first want to choose your target cryptocurrency, then you can decide on how long you want to dollar cost average for and the regular amount you will put in. After this you will need to keep to the plan and not pause it or try and time the market. The whole point of using dollar cost averaging is so you don’t have to try and predict any price swings.
Otherwise if you don’t have a lump sum set aside, you can put in a small percentage of your monthly paycheck into Bitcoin. You just need to determine the length of time you will be putting in a small percentage of your pay into Bitcoin.
Why will this work for cryptocurrency?
Cryptocurrency is still a very new technology. As such, it is still very volatile and is very unpredictable. If like me, you share a very optimistic long-term view of a cryptocurrency like Bitcoin, there is no sense in trying to time the short-term swings of the price and the main objective should be to accumulate as much as you can with the amount you are comfortable putting in. In that sense dollar cost averaging is the best method to do this.
Are there any disadvantages to dollar cost averaging?
There are always downsides to any investment technique and this includes dollar cost averaging. The only minor downside is that you may miss out on some good buying opportunities. However the upsides to dollar cost averaging outweigh the downsides, especially if you are a brand new investor to cryptocurrency and don’t know much about reading charts or don’t have an in-depth understanding of the technology
At the end of the day, it would most likely be a higher risk not to have at least a small amount of crypto in your portfolio rather than not having any. The opportunity cryptocurrencies can bring to the world is immense and it is good to remind yourself that we are still very much in the early stages of this revolutionary financial technology.
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