Dollar Cost Averaging
Dollar Cost Averaging [DCA] is a practice wherein an investor allocates a set amount of money at regular intervals to purchase an asset, usually shorter than a year (weekly/monthly/quarterly). DCA is generally used for more volatile investments such as Stocks & Bitcoin.
Investors DCA to mitigate risks and avoid trying to time the market. DCA is a good strategy for investors with a lower risk tolerance. If you have a lump sum of money to invest and you put it into the market all at once, then you run the risk of buying at a peak, which can be unsettling if prices fall. DCA instills discipline and helps manage the emotions that come with investing.
How to DCA
The best way to DCA is to set automatic deductions from your bank accounts to purchase these assets regularly at a desired interval, so let's say every week or month a $100 is deducted from your bank account to buy Bitcoin or invest in an Index Fund. There are various investing apps that offer DCA aka Automatic Investing.
Investing is a long term game, it has been proven that investing is the most efficient way of building and accumulating wealth. Dollar Cost Averaging remains one of the smartest ways to invest in the long run. The best way to build wealth is slowly, patience is a priceless investing skill.
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