Sep 25, 2022
Investing Like Savings With Dollar Cost Averaging (DCA)
In the Bear Market article? Here’s an Explanation and How to Deal with It, DCA (Dollar Cost Averaging) has been briefly explained in tips for dealing with bears. Now, let’s talk more about it.
What is Dollar Cost Averaging (DCA)
Dollar Cost Averaging is an investment activity like regular savings by buying crypto slowly and gradually. This is one of the strategies of investors in dealing with bear market conditions. By adopting DCA, you can get an asset at a low price and then sell it when the market has reached bullishness.
So that you get an idea of how DCA works, imagine the following illustration. Suppose you have money that you want to use for an investment of IDR 100 million. You plan to invest for 5 months so that per month you enter funds of IDR 20,000,000. After doing market research, you decide to buy ETH (Ethereum) which at that time cost Rp. 15,000. As a result, you get 6,667 coins. For 5 months, the coin fluctuated and finally reached a price of IDR 23,000. So, the final value of your investment is IDR 23,000 x 6,667 = IDR 153,341,000. That’s the result you will get if you use the lump sum method.
It’s different if you use the DCA method, for 5 months you will invest the same amount of funds every month. Without being affected by price changes that have increased or decreased.
Simulation Table
Cost average : IDR 15,600
Total capital: IDR 100,000,000
Total coins owned: 21,483
Investment value: IDR 155.043.000
Profit : IDR 55,043,000
By using DCA, even though it fluctuates and the cost average is the same, you can get more profit, with a difference of Rp. 1,702,000, which is bigger than the conventional method.
Advantages of Dollar Cost Averaging (DCA)
- There is less risk because you do not invest money in a lump sum but enter the market gradually. This also helps you avoid bad timing because crypto prices in the market move quickly and are difficult to predict. If you choose the wrong split-second timing, the profit potential will be different.
- DCA is suitable as an investment strategy for beginners or investors who want to invest long-term and don’t want to worry too much about technical market analysis.
- Protects you from FOMO (Fear of Missing Out). By doing DCA, you will focus on saving regularly without the need to pay attention to the public who is FOMO.
Disadvantages of Dollar Cost Averaging (DCA)
- Since you make purchases repeatedly, there are also many administrative costs that must be incurred for each purchase.
- The return you will get is smaller than investing in a lump sum method.
Okay, that’s the explanation of Dollar Cost Averaging (DCA). Have you tried this method yet? Or just interested in trying it? Let me know in the comments column.
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