Active trading can be stressful, time-consuming, and still yield poor results. However, there are other options out there. Like many investors, you might be looking for an investment strategy that is less demanding and time-consuming. Or just a more passive investment style.
But what if you want to invest in the markets but don’t really know how to start? More specifically, what would be the optimal way to build a longer-term position? In this article, we’ll discuss an investing strategy known as DCA, or dollar-cost averaging, which provides an easy way to mitigate some of the risks of entering a position.
What is dollar-cost averaging?
Dollar-cost averaging is an investment strategy that aims to reduce the impact of volatility on the purchase of assets. It involves buying equal amounts of the asset at regular intervals.
The premise is that by entering the market like this, the investment may not be as subject to volatility as if it were a lump sum (i.e., a single payment). How so? Well, buying at regular intervals can smooth out the average price. In the long term, such a strategy reduces the negative impact that a bad entry may have over your investment. Let’s see how DCA works and why you might want to consider using it...