Dollar-Cost Averaging (DCA) is an investment strategy that involves dividing the total amount to be invested into smaller, regular purchases of an asset, rather than investing the entire amount at once. This approach helps reduce the impact of market volatility by spreading out the purchases over time, averaging the cost per unit.
Example 1️⃣: Person A uses DCA for Bitcoin over 12 months
Person A decides to invest $12,000 in Bitcoin using DCA. They invest $1,000 each month, regardless of Bitcoin’s price.
- Month 1: Buys $1,000 worth of Bitcoin at $40,00
- Month 2: Buys $1,000 worth of Bitcoin at $35,000
- …
- Month 12: Buys $1,000 worth of Bitcoin at $30,000
——> Result: After 12 months, Person A has purchased Bitcoin at various prices, averaging $32,500. This strategy reduces risk by buying at different prices over time.
Example 2️⃣: Person B buys without DCA
Person B also has $12,000 but chooses to invest it all at once when Bitcoin is $40,000.
- Buys $12,000 worth of Bitcoin at $40,000.
——> Result: If Bitcoin’s price drops, Person B faces a larger loss compared to Person A, who used DCA. For example, if the price falls to $30,000, Person B’s average purchase price remains higher.
Using DCA, Person A spreads the risk over time, whereas Person B is exposed to greater risk if prices drop after their single purchase.
🔍 Follow us:
Website | Telegram | Twitter | Instagram | Facebook | Tiktok
📱Download App:
Android & iOS