There’s no shortage of personal finance advice and techniques to follow when it comes to investing. Unfortunately, despite what some of the “market experts” will tell you, there’s no one strategy that will guarantee you massive financial wealth. There are, however, some time-tested investment strategies that can help put you in a position to grow your portfolio with minimal risk.
One such strategy is dollar-cost averaging, an effective way to grow your financial investments while protecting against the risk of significant loss. While it may not be the most growth-focused investment strategy out there, it is incredibly simple to follow and can help set you up for long-term investing success.
In this article, we’ll cover everything you need to know about how dollar-cost averaging works, including its benefits and some examples of it in action.
What is dollar-cost averaging?
Dollar-cost averaging involves investing a sum of money (usually a relatively small amount) into one particular asset at regular intervals.
The entire premise of dollar-cost averaging is not to try and time the market. In a perfect world, you would always be able to purchase a stock or alternative investment at the absolute lowest price possible. We all have a friend or relative who seems to have that “knack” for knowing the perfect time to buy.
But given market complexities, timing the market is virtually impossible over a long enough time frame. Sorry, not even your best friend has a crystal ball.
As Charles Schwab notes on their blog:
“ The best course of action for most of us is to create an appropriate plan and take action on that plan as soon as possible. It’s nearly impossible to accurately identify market bottoms on a regular basis.”
Let’s look at how dollar-cost averaging works.
How exactly does dollar-cost averaging work?
Let’s say you are interested in investing in the cryptocurrency Solana (SOL) and want to add some to your portfolio. Let’s also say, for this example, you have 1K USD to invest.