In this case, your portfolio would total just over $13,000 in 2020, compared to $23,000 from investing lump-sum. Now let’s say you waited a year, and invested $200 in bitcoin every month between December 2018 and December 2020.

Although your portfolio would recover, you would have lost out on the ability to compound your profits in the meantime (and maybe even scared yourself into selling your bitcoin at a loss).

In contrast, going “all in” as prices are peaking is generally considered a bad idea - but how could you know? If you had taken that same amount of $16,300 and invested it all on December 18, 2017, you would lose nearly $8,000 throughout the first two years. But on January 25, 2021, your portfolio would be worth approximately $65,000 - a return on investment of more than 299%. If you invested $100 in bitcoin every week starting on Decem(near that year’s price peak), you would have invested a total of $16,300. To demonstrate, let’s dig into an example using real-world prices, right as they approached Bitcoin’s biggest downturn to date. Of course, the success of any DCA strategy is still subject to what’s happening in the market. These can lead investors to manage their portfolios ineffectively (think: panic selling during a downturn or overbetting due to fear of missing out on exponential growth). Often, beginner traders fall into the trap of “emotional trading”, where buying and selling decisions are dictated by psychological factors like fear or excitement. When a market experiences price volatility, the goal of this strategy is to average out any dramatic increases or decreases in their portfolio and to benefit a little bit from price movement in every direction.Īvoiding FOMO and emotional trading. DCA is a rule-based approach to investing. Hedging bets through volatility. DCA exposes investors to prices across time. But even if they’re wrong, they’ll have investments in the market as the price increases.

If they’re right, they’ll benefit from picking up assets at a lower price. And in situations like the ones below, it may offer more predictable returns than investing a lot of cash at once:īuying an asset that may increase in value over time. If an investor thinks prices are about to go down - but are likely to recover in the long term - they can use DCA to invest cash over the period of time they think a downward movement will happen. When is DCA more effective than lump-sum investing?ĭCA can help an investor safely enter a market, start benefiting from long-term price appreciation, and average out the risk of downward price movements in the short-term.

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