The secret to building Wealth is simple. The answer? Dollar cost averaging!
If you were like me when I first heard about this concept I had no idea what these three words were talking about.
Dollar Cost Averaging is an idea of finding something to invest in consistently. For example, say you are interested in invest in the S&P 500 Index. You would invest in this stock on a daily, weekly or monthly basis. The idea is that no matter how the market is performing that you will invest in this stock.
This ends up working out because even the top hedge fund managers or day traders cannot accurately or consistently time the market. Dollar Cost Averaging allows you to be in the market through the ups and downs and be able to come out with a profit. The only time you will lose with this concept is if you cash out too soon!
The concept is not a get rich quick scheme. By no means will this get you rich overnight but if you are willing to be patient and consistent this will pay off in the long run.
Q
uick story – I invest in Coinbase once it hit the stock market as an IPO. I first learned about it from my roommate who also invested in the same stock. Unfortunately, it did not perform how we would of liked and lost value within a few days. Within a week I was down 50%. Needless to say, we did not talk much about that investment for a while.
A few months later he comes running into the room ecstatic! He was in the green for Coinbase. How could this be? I was still in the hole by at least 18% from the last time I checked. He started to explain to me how he ‘averaged down’. This is the same concept as Dollar Cost Averaging. He broke it down like this: he bought 1/3 of his position on the IPO date at $414/ share. Then he bought the other 2/3 of his position when it dropped to $232. This makes the average price he paid per share to $293/ share.
On the other hand, I invested one time and purchased the share at 410.40 on the same day! I am still in the red by 22.17% as of October 29,2021.
The moral of this story is to purchase even when the market is down. You will be able to rebound or make up your money faster in the long run compared to just investing one time and leaving your money alone.
**Practice Dollar Cost Averaging with your investments. Find an investment you like, create an automated investment contribution and reap the rewards!
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