The regular purchases occur regardless of price, volatility, or economic conditions.
Dollar Cost Averaging 101
Many of the brightest minds in the investing world share one common trait: they recommend dollar cost averaging as an investment strategy.
But what is dollar cost averaging and how does it work?
Here's Dollar Cost Averaging 101!
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The regular purchases occur regardless of price, volatility, or economic conditions.
Its simplicity removes behavioral and psychological biases from the equation.
Let's look at an example.
You aren't sure if it will go up or down in the near-term, so you decide to dollar-cost average.
Great decision! How will you do it?
You decide on a weekly DCA, so every Monday, you buy $500 of $BTC, regardless of price. After 20 weeks, you have built your desired $10,000 cost basis position.
You know you believe in the long-term story for $BTC, but you aren't sure about near-term movements.
You are confident it's going (much) higher eventually, but with likely volatile swings between now and then.
This is an excellent approach for high-conviction, long-term investments.
(Note: Perpetual DCA is the backbone of my personal strategy.)
DCA + Compounding = All You Need
The best part? It's easy. Anyone can do it. https://t.co/CxhVg0WxsO
Compounding 101
— Sahil Bloom (@SahilBloom) September 17, 2020
Albert Einstein famously said, "Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it."
But what is this great wonder and how does it work?
Here's Compounding 101!
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For equities, robo-advisors such as @wealthfront and @betterment offer automated DCA plans. @M1_finance allows for a more user-controlled strategy and experience.
@RoundlyX allows you to invest your spare change in bitcoin. A neat, seamless way to DCA. It is the @acorns of cryptocurrencies.
In investing, as in life, keep it simple!
Dollar-cost averaging + compounding = all you need.
So that was Dollar-Cost Averaging 101! I hope you found it useful.
And for more educational threads on money, finance, and economics, check out my meta-thread below. https://t.co/Jyqunbg8uM
1/ An Allegory of Finance
— Sahil Bloom (@SahilBloom) July 18, 2020
I have been posting a lot of educational (and humorous!) threads on finance, money, and economics.
My mission is simple: to demystify these concepts and make them accessible to everyone.
All of the threads can be found below. Enjoy and please share!