Dollar Cost Averaging (DCA)

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Dollar Cost Averaging is where you purchase a set amount of an investment at a regular and specific time. This is also known as constant dollar plan, pound cost averaging, unit cost averaging and cost average effect.

You likely are already using Dollar Cost Averaging without even realising it. Superannuation (or 401k or pension) works so well because it uses DCA and automation together which provides the best results. You are contributing the same percentage every pay cycle, whether that is weekly, fortnightly or monthly. Contributing over your entire working life and with many retirement funds averaging 8-12% a year, means your account grows quickly, effortlessly and you hardly notice the difference especially as you are taking a long term investment horizon. 

You can apply the principles of DCA into other areas to help grow your account and portfolio. I focus on building my Cryptocurrency portfolio but the same concepts can be used for any type of investing. 

Why Dollar Cost Average?

Dollar cost averaging is a very effective tool as individuals can't perfectly time the market.

By buying regularly smaller amounts and minimising your risk to volatility allows more consistent growth. This technique works best if you can stick to the same amount or percentage and can be very precise on the timing interval. If you have a set lump sum you are wanting to Dollar Cost Average in over a short period of time it is often easy to manually make the transactions. If you are wanting to build your account over a longer period of time as part of a regular savings plan, use automation if at all possible. Being consistent (especially for the longer term) is notoriously difficult for any person as life tends to get in the way, and this is why automation is your best friend when trying to Dollar Cost Average. 

Currently we have economic instability, rising inflation and stagnant wages. It is in everyone's best interest to limit their exposure to bad debt and build a pool of solidly performing assets for their own financial future. The lead up to the creation of Bitcoin is outlined in my Money blog, which you can read here and explains a little about why I am passionate and believe in Cryptocurrency for the long term. 

How to use DCA?

For saving in Australian Dollar, I use Raiz (Australia only, other country options are listed in my blog on Automation here) for round ups (microinvesting via round ups is when the small change from a transaction gets automatically added up and sent through to the account once $5 limit has been reached – this can add up quickly) and a regular recurring lump sum for growing my Australian dollar investments. This makes it incredibly easy to build up my account which I use as a savings for a new car. Whenever I have a lump sum to add to my account I can add to it by creating a one off payment. This account has been averaging over 8% a year after taxes and all fees are taken into account – much better than the 0.8% bank savings rate! As this account is invested in the stock market it is subject to potentially greater volatility so if you are using it for a short term goal please be aware of that.

For Cryptocurrency I use both Amber and Coinbase. Both accounts will provide you with $10 of Bitcoin when you set up and deposit at least $100 when using my link. Amber is currently Australia only and is looking at having microinvesting reinstated once they find a suitable third party to facilitate and provides recurring Bitcoin purchases. Coinbase is available in 133 countries and approximately 33 have Coinbase Pro. Recurring purchases of a variety of coins can be made through your bank account. If you have access to Coinbase Pro I would highly recommend using the services of https://www.coindca.com who will facilitate the purchases for you to minimise your transaction fees through setting up an API. Setting up an API is safe, secure and thoroughly explained on their website and is very easily done. If you are in Australia Amber is the cheaper option between the two.

Setting up

For the actual setting up of a recurring purchase, it is very easy

  • Click the links either Amber or Coinbase
  • Set up the account and add a payment method
  • Click Recurring or Purchase
  • Select the amount (and coin for Coinbase) you want to buy and the frequency (weekly/fortnightly etc)
  • Confirm and purchases of your Crypto will start at the given date. 

Remember to never leave too great an amount on an exchange and to withdraw it to your own private wallet regularly. To learn more about security and how to store your Cryptocurrencies check out my post here

 

Today we face an uncertain economic future. We can't control how governments or others spend their money however we can protect ourselves. Reduce debt, diversify and build a strong asset base to protect your future.

If Cryptocurrency is fascinating but overwhelming please reach out. I love helping people who are committed to their future learn and grow their portfolios. You can also check out my freebies under Start Here for some fantastic PowerPoint Presentations to get started today! Alternatively, to access a simplified 3 month plan customised to YOU and your risk tolerance, budget and goals click here for my 3 month Portfolio Plan

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