Dollar Cost Averaging
Taking the emotion out of investing...
Imagine investing and loosing all, that is enough for someone to decide not to try again. One could have bought bitcoin at 60,000 US dollars and now be in tears as the price currently sits at 18,000 US dollars (ouch) or one could have been waiting for the perfect time to invest and missed out on investing in 2018. The problem is not investing but rather the time of investing and the truth is that we will never be able to tell when the price of an asset is at its lowest or highest the only thing we can do is ensure the company or assets has solid fundamentals.
One way we can avoid the issue of investing at a rate too high and missing out on drops in prices is by using a strategy called Dollar-Cost Averaging. Dollar-cost averaging involves investing the same amount of money in an asset at regular intervals over a certain period regardless of price. The idea here is that by buying a fixed amount you can buy more when prices drop because things are cheaper and buy less when they are more expensive. This strategy allows you to take advantage of asset price fluctuations without loosing too much when there are losses. Another benefit is that dollar-cost averaging is easy to automate and removes the stress involved with having to pick prices and determine how much to buy and when to buy. It is also helpful as it helps people with dividend stocks reinvest their money easily.
Although dollar-cost averaging is a great strategy for long-term and beginner investors, a major drawback is that period investing as opposed to lump sum investing can attract higher fees as you would pay a fee every time you invest. As with everything investing, it is important to take note of your current financial situation before taking any course of action and a great place to start will be to consult with a financial planner on how best dollar-cost averaging suits your financial goals.