Dollar Cost Averaging With Cryptocurrency
This article is really about Dollar Cost Averaging (DCA) and how it relates to investing money into cryptocurrency. DCA is an investment philosophy, well known to equities investors. It became a hot investment topic when the general public began to learn about mutual funds back in the 80’s.
I first heard about DCA in the late 80’s when I was a licensed seller of mutual funds with the A.L.Williams Company, the originator and pioneer of the “Buy Term and Invest The Difference” personal financial planning philosophy.
One highly reputable mutual fund which we sold at that time was the Templeton family of funds. Sir John Templeton is now deceased but he was one of the original pioneers of smart mutual fund investing. His company was very successful… partly because it wasn’t even headquartered in NYC so his research was always more independent.
In fact, his company was one of the first mutual funds which diversified internationally. He was very innovative and somewhat contrarian for his time but he had a highly respected reputation as an investor, businessman, and philanthropist.
His company later merged with Franklin Funds and is now known as Franklin Templeton Funds.
DCA was one of a three part investment strategy which has pretty much always been effective for those who have followed it. The three parts of the strategy are:
Invest Long Term
Dollar Cost Average
Assuming you know what mutual funds are, you’ll know that many funds are diversified. You’ll also know that most people who hold mutual funds do so for the long term. But you might not know about DCA.
DCA always works….in a rising market. It does not work in a consistently falling market (unless you’re looking for tax write-offs). It does not so much ensure a profit (at least not in traditional equities) but it does protect against a significant loss.
Little blips in the market don’t matter. In fact, they’re expected. But any problem with minor downturns is always negated by a long-term perspective — in a rising market.
The key to making DCA work is to invest a consistent amount of money at regular intervals. Using equities as an example: Investing $100 @ month, the investor gets 4 shares when the shares sell at $25 each. But if the price of the stock goes down to $20 he/she gets 5 shares. Which is better in the future? 4 shares or 5 shares?
But what about if the price of the share goes up, i.e. it costs more. For example, $33 @ share. That means that the investor still invests $100 but now only gets 3 shares instead of more. That’s still OK because if the market is rising, it’s still a good investment.
As an example, I sold a program of just a small amount of money invested in one of the funds to my pastor back in Galveston, TX. A couple of years ago when I touched based with him (he’s now retired) on the phone, he said to me, “Art, I’ve got to thank you for something.”
I of course had no idea what he was talking about. But he proceeded to tell me that he had maintained that investment program in his Templeton fund for a long time. And he told me it had turned out very well for him.
That’s the proof of the pudding for Dollar Cost Averaging.
So how does that relate to Bitcoin and cryptocurrency?
It means simply that most people need not worry about ‘technical trading’ in their cryptocurrency part of their portfolio….unless it’s something they just ‘get off’ on. And, make no mistake about it. There are lots of people who ‘Day Trade’ in cryptocurrencies. But day-trading is not for the average person.
But for the average person, long-term investing of tolerable amounts of ‘money’ in cryptocurrency carries not only minimal risk but also relatively assured capital preservation and upside potential.
Certainly getting in on a coin launch at 10 cents @ coin is a great opportunity when the coin launches at $1 and is reasonably expected to appreciate rapidly thereafter. But even if you have to get ‘in’ at $1 or $2, that’s still a good deal if the coin appreciates rapidly.
Cryptocurrency is an investment but it’s a very new kind of investment. In my opinion, it only barely falls with the traditional definition of “investments” (mostly because it’s not something tangible like a stock certificate, bond, deed, or other better-known type of investments). But again, ‘money’ isn’t really what most people think it is any more,is it?
Investing is not gambling. Gambling is putting money at risk by betting on an uncertain outcome with the hope that you might win or make money.
However, at this point in time putting some money into a reputable cryptocurrency, in whatever amount is comfortable to you, is not a gamble. The existing growth charts, when combined with prudent research and due consideration, definitely make Bitcoin, and many reputable altcoins (such as MyCryptoCurrency), a wise investment and almost immeasurable risk.
Just ‘play’ it wisely by Dollar Cost Averaging. Or put a lump sum into it and set your alarm to come back and check it in a year or two. And don’t think you’re going to be a ‘trader’ if you’re not already one. You don’t need to do that… to win your game.
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