What is Dollar Cost Averaging?

July 13, 2021
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There are various strategies for investing, one of which is Dollar Cost Averaging (DCA), which means investing equal sums of assets at regular intervals. By investing periodically, investors can minimize the risk of price volatility as they are buying assets at different time intervals. Thus, they are investing at an average buying price instead of investing one time at one price.

So, in the long run, investors can maximize their chances of getting profit. With this strategy, investors will also find it easier to deal with emotional ups and downs due to the drastic price increases or decreases in cryptocurrency. This method is very suitable for beginner investors and long-term investors.

What are the advantages of dollar cost averaging?

Dollar cost averaging has the following advantages:

  • Minimize the risk of purchasing asset at the wrong time
  • Eliminate the risk of investing because of emotions
  • Very suitable for beginners and investors who want to invest in the long term

How does it work?

For instance, you have IDR 10 million and you have allocated it to buy bitcoin. The current price of bitcoin, for example, is in the price range of IDR 500 million. Then, you will get:

10,000,000/500,000,000 = 0.02 BTC

However, if you decide to buy bitcoin with the DCA method and purchase it gradually over 10 weeks with an allocation of IDR 1 million per week, then the bitcoin you get will be as follows:

WeekPriceOne time buy at IDR 10 millionIDR 1 million x 10 times
Week 1 IDR 500,000 0.02 BTC0.002 BTC
Week 2 IDR 510,0000.00196 BTC
Week 3IDR 470,0000.00212 BTC
Week 4IDR 460,0000.00217 BTC
Week 5IDR 475,0000.00210 BTC
Week 6IDR 400,0000.0025 BTC
Week 7IDR 500,0000.002 BTC
Week 8IDR 490,0000.00204 BTC
Week 9IDR 510,0000.00196 BTC
Week 10 IDR 450,0000.002 BTC
0.02 BTC0.021 BTC

If on Week 11 the price of Bitcoin rises to IDR 525,000,000, then by purchasing with Dollar Cost Averaging method, investors can book more profits.

Dollar-Cost Averaging is best done during a bear market or when the market is experiencing a downward trend in price because investors can get assets at lower prices.

Dollar cost averaging profit simulation

On Pintu app, you can find a DCA feature that you can use to simulate how often you have to save regularly and how much investment you will get in return. Simply download Pintu app and click the “DCA” feature that you can find on the app’s home page.

You can also visit Pintu website to find out how much profit you can get by investing regularly such as through DCA.

Author
Nadya Rahmaesya

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