What on earth is ‘Dollar-Cost Averaging (DCA)’?
Dollar-Cost Averaging (DCA) is an investment technique of buying a fixed dollar amount of a stock or fund on a regular schedule, regardless of the share price. It sounds super complicated but it’s actually very simple: rather than buying a lump sum of an investment in one go, investors instead buy a series of smaller amounts of the same value, on a regular basis.
Why could DCA be a good strategy?
The premise is that by buying stock at a range of different prices over a long period of time, DCA can lower the average share cost over time, increasing the opportunity to profit. We all know that the markets are extremely volatile and the DCA strategy allows you to minimize some of this risk. In a way, DCA can be seen as a sort of insurance policy, sacrificing some larger gains in order to protect yourself from larger losses.
Another great benefit of Dollar-Cost Averaging is on the emotional side. By pre-determining the amount you would like to invest and the time scale (weekly, monthly, quarterly), you strip away emotions of overconfidence or panic in times of market stress. You slowly build up your wealth one piece at a time, not by recklessly buying lump sums here and there.
I’m still not sure. What do the billionaires say about it?
Dollar-Cost Averaging is by no means a new phenomenon. In fact, Buffett has said many times that the best way for the majority of people to invest is to Dollar-Cost Average into a low-cost S&P 500 mutual fund. Even Buffett’s favorite mentor, Benjamin Graham, had the following to say: “Such a policy will pay off ultimately, regardless of when it is begun, provided that it is adhered to conscientiously and courageously under all intervening conditions.”
How can auto-investing help with DCA?
Investing a small sum on a regular basis? That’s exactly where auto-investing comes into play – auto-investing lets you set aside a set amount of money every month to invest, into an investment vehicle of your choice. Auto-investing and Dollar-Cost Averaging go perfectly together, like peanut butter and jelly. You don’t have to start big either: the iBillionaire platform allows you to start investing from as little as $5 per month.
Sounds interesting, let’s try it!
The great thing about combining the DCA strategy and auto-investing is that after the initial set-up, there really is nothing else to worry about. You don’t need to stress about changes in the market or about organizing your investments. Give it a go here and start auto-investing with iBillionaire today!