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Date: 2024-02-29

Dollar Cost Average, What Is It? and Should You Use It?

Dollar Cost Averaging is an investment strategy designed around the regular deposit of money in an investment account. If the user is buying shares of a fund, for example, they'll allocate $1,000 to the purchase of the shares over 100 weeks (rather than as one lump sum).

The process of doing this is mainly to alleviate any potential issues caused by the way in which either the value of the currency, or the price of the underlying share/asset are handled.

In other words, if you're looking at making a substantive investment, it will likely be a lot more effective for you too put the money into the fund over a sustained period; it will not only balance against potential losses but also make sure that you have an adequate chance of making more profit.

The point of the process is that it basically benefits the investor by way of being able to provide them with the ability to make their dollars (or whichever currency they use) go much further than they may have had otherwise. In the UK, it's known as the "pound cost average" as well as having a large number of other names.

This tutorial will explain how it works in the "crypto" world...

Crypto Dollar Cost Averaging

The "dollar cost average" approach for the "crypto" world involves buying one of the "coins" / tokens over a sustained period. The way in which you are able to make substantive gains over the duration is what allows the profits to be made from the coin's price.

Thus, if you're looking to get involved with the "crypto" community, you'll want to ensure that you're putting your money into the various "coins" over a period of 6-12 weeks, rather than a lump sum all in one go. Doing this makes it extremely likely that your investment will fall through.

To get the most out of DCA, you need to ensure that you have the most effective solution for the various systems. We've found that even though the "crypto" space is extremely volatile, it has to adhere to core market principles. These ensure that you are able to get the most out of the system.

The big difference comes when you try and apply the various techniques to the myriad of smaller "coins", most of which don't have very high quality value - preventing them from retaining their price/gains for a sustained period.

In the case of this occurring, you need to ensure that you're investing into a "coin" that has actual value, not just some crazy price metrics. We've found that if you're looking to get the most out of the system, the most effective "coins" are the ones which are actually backed by real companies; namely the likes of Ripple and Ethereum.

Should You Use It?

The jury is out on the DCA process for "crypto" - the underlying problem is that most "coins" are simply too volatile to make it work.

This means that if you're looking for systems which prevent the system from being able to get the most out of the system, you'll typically find that a large number of potential issues will occur. This is a big problem. DCA is only really for large funds which are stable and effective.