As the saying goes, money invested is money earned. Investment is a common part of our portfolio and curating an appropriate strategy is an essential part of it. To enjoy the benefits of the investment and make ways for passive earning, you must curate a set of principles that are best suited for your financial goals. The plan essentially will make it easier for you to make the best of the volatile market of the crypto space.
Having an investment strategy is an absolute must when delving into the crypto space. The strategy aims to help you in formulating your portfolio to reduce risk and protect your wealth. As there are no set rules for the investment strategy, it should be set depending upon your profile such as income, available capital, risk threshold, growth expectations, and more. Among the numerous strategic investment plans, dollar-cost averaging is one of the most popular strategies that you can employ. In this article, let us understand how you can use this strategy to strengthen your crypto game.
What Is Dollar-Cost Averaging?
The crypto space is often characterized by its volatility. While it has worked exponentially to deliver lucrative returns over the years, it also comes with a set of risks. This is why it is extremely important to ride the tides while staying cautious. According to various crypto analysts, dollar-cost averaging is an old investment strategy that allows you a way to derive a greater profit potential from the crypto space.
The dollar-cost averaging strategy has been a part of the financial market for a long time. Traditionally, it has been employed for investing in stocks. DCA essentially translates to dividing the total sum of investment into small portions before investing the same into the market at regular intervals. When you employ the dollar-cost averaging method, you continue to invest no matter what the market conditions look like.
Let’s take you through an example to better understand the idea behind dollar-cost averaging in crypto.
If you have a sum of Rs. 1.20 lakhs that you have placed aside to invest each year in crypto, then you will have to invest about Rs. 10,000 every month to align with your crypto goal plan. Alternatively, you can choose to contribute Rs. 2,500 each week towards your investment goal. This way, you continue to invest while staying within your set investment budget.
Importance of Dollar-Cost Averaging
When you invest regularly for a fixed sum, you obtain the best that the market offers. This is where Dollar-Cost Averaging is coming in as a fruitful strategy to add to your investment journey. Since you usually purchase during the highs and lows, you make the average of your valuable dollar or rupee. If the price of the asset drops when you conduct dollar-cost averaging, then you make a profit. On the other hand, if the price of the asset increases, then you incur a loss. The approach is realistic, allows a better potential for profit, and prevents impulsive decisions.
Additional Read: Crypto Investing Strategy
How Does DCA Work for Crypto Investing?
The crypto market continues to sway and is highly volatile. This makes the dollar-cost averaging strategy a perfect fit for the crypto space. Experts emphasize that while this strategy can also lower potential returns, it protects your investment from facing the heavy wrath of high market fluctuations.
Crypto is relatively also new and highly impacted by ongoing speculations. There are predictions made about the future based on past performances. Similarly, certain unreliable sources drive the possible trend that a particular asset value may dip. These aspects can make it hard to constantly stay on track with crypto investing. Purchasing portions of your preferred crypto within shorter durations is a more sensible way of enjoying the best returns on your investment over time.
Advantages and Disadvantages of Dollar-Cost Averaging
Whether you are a novice or a well-seasoned crypto investor, the dollar-cost averaging strategy works for all. However, like all methods of investment, it comes with its own set of advantages and disadvantages. Let’s take you through the possible pros and cons of adopting this classic strategy.
- The approach allows you to stay steady during a loss and enjoy growth in times of profit.
- ‘Timing the investment’ to suit market shifts is not believed to be the best strategy as per crypto experts. They continue to recommend steady investing through the changing seasons.
- Long-term investment with the dollar-cost averaging strategy effectively neutralizes short-term market volatility for higher returns. It’s a great way to grow your asset value steadily.
- If you want high-value profits within a short-term, dollar-cost averaging is not the best pick.
- You may incur fees from the crypto exchange when conducting dollar-cost averaging.
Additional Read: How to Diversify your Crypto Portfolio
Remember, investment strategies are static. This means that they must be reviewed periodically. The financial market continues to evolve and thus, your investment strategies too must stay at pace. The dollar-cost averaging strategy works well but you must also continue to add a slew of other strategies like asset diversification and investing as per loss appetite, based on your changing crypto investment plans.
The Crypto Investment Plan by CoinDCX is a great way to facilitate your investment journey. Similar to a systematic investment plan for mutual funds, it allows you to make investments through an automated system. All you have to do is add funds to your crypto wallet and the sum is automatically directed towards the purchase of your crypto assets weekly. This way, you enjoy the best of convenience and rupee-cost averaging.
Learn more and stay at the top of crypto-related trends with CoinDCX, always!
Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. In case you have any queries, write to [email protected].
The above information represent the independent views of Primestack Pte. Ltd, Neblio Technologies Pvt. Ltd, and/or their affiliate entities and are for informational & educational purposes only. The content, information or data provided above is not an offer, or solicitation of an offer, to invest in, or to buy or sell any interest or shares, virtual digital assets/ crypto products or securities, or to participate in any investment or trading strategy. Any statement or communication made above shall not be treated as a legal, financial, investment or tax advice by the reader. The calculations, data, risk-return formulations, performance or market capitalization indicators captured above are based on the independent data sourcing including collation of public information and/or analysis performed by analysts, advisors or employees of Primestack Pte. Ltd/ Neblio Technologies Pvt. Ltd and/or their affiliate companies and/or any third party. Past performance is not indicative of any future results. The reader(s) are hereby advised to consult their financial/ legal/ tax advisor(s) before making any investment.