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This week, our Moneybrain chronicler and team dig into dollar-cost averaging
FOLLOWING the announcement of the US Crypto Reserve by crypto president Donald J Trump, it is important that we understand investment options for volatile markets to minimise losses and maximise returns.
In volatile markets, DCA minimises losses and boosts returns by spreading investments over time, leveraging dips to average out costs.
In simplest terms, DCA is like a diet. You don’t scarf down the whole cake now, unsure when you’ll get another cake. Instead, you section off your cake and consume it sparingly. Some days it’s pricey and some days it’s cheap, averaging out your cost of cake acquisition.
Cake DCA: More cake, lower cost
Because crypto can be a volatile market, we are going to use “crypto cake” to demonstrate how this works. Imagine you are buying cake every month for $100 each time. DCA spreads your budget over time, snagging more cake when prices drop, averaging lower than a one-time high-price buy.
DCA thrives when prices dip (eg $6 in January), purchasing 16.67 crypto cakes versus 8.33 at $12. Averaging $8.23 beats the $12 lump sum, yielding 22.90 more crypto cakes and more profit ($202 versus -$50) when prices hit $11 today. In a volatile market like crypto, DCA can be a winner.
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