Dollar-Cost Averaging and Cryptos

| 2017-11-19

So you’ve made up your mind to start investing in cryptocurrencies, but you haven't determined how to go about it. Well, in this article, we introduce an investment technique that can simplify your life. You won’t have to worry about how much of a cryptocurrency to purchase anymore. In fact, once you figure out how much money you can invest each month, you’ll just purchase that dollar amount. It’s that simple!

Dollar-Cost Averaging

The investment technique we’re referring to is dollar-cost averaging. With dollar-cost averaging, an investor buys a fixed dollar amount of an investment on a regular basis, regardless of the price. When the price is low, the investor purchases more of the investment. On the other hand, when the price is high, less of the investment is purchased. Either way, the same dollar amount is purchased regularly.

Here’s an example: After completing her monthly budget, Sarah determines that she can invest $250 per month. After doing research on several cryptocurrencies, she decides to invest in XYZ coin. Therefore, each month Sarah will purchase $250 worth of XYZ coin regardless of the price.

Let’s assume the following are costs of XYZ over a five-month period.

Month 1: $7
Month 2: $6
Month 3: $8
Month 4: $6
Month 5: $10

If Sarah purchases $250 worth of XYZ coin on the first of each month, the total number of coins per month is equal to:

Month 1: $250/$7 per coin = 35.71 coins
Month 2: $250/$6 per coin = 41.67 coins
Month 3: $250/$8 per coin = 31.25 coins
Month 4: $250/$6 per coin = 41.67 coins
Month 5: $250/$10 per coin = 25 coins

After five months, Sarah has accumulated 175.3 XYZ coins at an average price of $7.13. As you can see, dollar-cost averaging is an effortless way to approach your monthly investing. It allows you to get into the habit of investing on a regular basis. First, determine how much you can afford to invest each month, then let dollar-cost averaging work for you!

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