With promises of big payouts, it can be tempting to invest your entire paycheck at once. In the digital era, investments are just a few taps away. However, while investing is easy, knowing how to invest is the harder and more important part. Having the correct investment strategy might make the difference between investing and gambling. This article will teach you a tried-and-tested investment strategy; dollar-cost averaging.
What is Dollar-Cost Averaging?
It is an investment that is meant to keep you from blowing your entire paycheck at once. Such investment involves investing a fixed amount of money every month, regardless of the state of the market. Moreover, it makes investors set money aside every month for their investments.
This investment is a very popular and very successful investment method. Even using dollar-cost averaging to invest in bitcoin during the 2018 crash would have made you a profit nowadays. However, it is low risk, low reward strategy: You don’t lose as much money in a bear market, but you don’t gain as much in a bull market.
The first step to becoming an averaging expert is to choose the amount of money you will invest, and the frequency of your investments.
If you are new to investments, even a small amount, such as 100 dollars monthly should get you started.
The next step is to choose your investment. Usually, it implies buying the same stock every month. However, if your goal is learning and diversifying your portfolio, you can make a different purchase every month, while using the rest of the month for researching potential new investments. Remember that whenever you make a monthly purchase, you log it in a secure place. Knowing the date and price of the purchase will help you calculate your profits accurately. Logging your purchases will also show you the difference between investing your money all at once.
Lastly, the most important step is not investing blindly. Not even dollar-cost averaging will save you from losing money on a bad investment. Also, make sure to look out for scams if you are buying cryptocurrency or precious metals from someone you don’t know. Always make sure that they are who they say they are, and that they have an extensive positive trading reputation.
The Bottom Line
Investing money is not such a grueling task when you have a strategy to follow. If you follow the steps in this article, you should be able to invest your money in a responsible way, without having to worry about losing too much of it.