We’ve all heard the saying “Buy low, sell high.”
While this certainly sounds appealing, pulling it off can be easier said than done. To overcome this challenge, you could rely on the latest news, government data, or even sophisticated technical indicators to buy and sell at the right time…or not.
Alternatively, you could simply use dollar-cost averaging, a simple technique that involves making regular, fixed investments to accumulate wealth over time. By taking this approach, you are doing the opposite of “timing the market.”
How Dollar Cost Averaging Works
For example, let’s say you want to invest $100 into bitcoin every week. Should the price of the digital currency fall, your $100 will simply buy you more bitcoin. If the price rises, your weekly investment will buy you less bitcoin. By taking this approach, you can “average out” the cost you pay for bitcoin over time.
In other words, by using dollar-cost averaging, you are managing the risk of buying or selling at a less-than-ideal time. Since bitcoin’s price fluctuations can be severe, you might find yourself buying into the digital currency at a high point, only to see its value decline sharply. Alternatively, you might sell your bitcoin, thinking the market has hit a top, only to find bitcoin enjoy notable gains in a short time frame.
In addition, purchasing bitcoin at regular intervals means you will not have to spend time watching the markets in an effort to determine the best time to buy and sell. This could prove quite valuable, as you enjoy your free time instead of being glued to a computer monitor for hours.
Since bitcoin can be particularly volatile, buying it in regular intervals can help reduce your anxiety significantly.
Warren Buffett’s Wisdom
By purchasing fixed dollar amounts of bitcoin at regular intervals and then retaining those funds, you are following a buy-and-hold strategy. The legendary investor Warren Buffett, one of the world’s richest people, has repeatedly advocated this investment approach.
The Oracle of Omaha stated during a 2016 interview that to make money, investors should own “good companies for long periods of time. If they buy good companies, buy them over time, they’re going to do fine 10, 20, 30 years from now.”
While Buffett was referring to stocks, these same lessons can be applied to bitcoin and other digital currencies.
Bitcoin’s Upward Trend
If you decide to use dollar-cost averaging to purchase bitcoin, keep in mind that bitcoin’s price has generally followed a strong, upward trend over time. Countless articles have emphasized the amount of money investors could make if they had purchased the currency early on and held it.
If you want to invest in bitcoin, it may be wise to look past the sensationalist headlines and simply focus on the fact that since inception, bitcoin’s price has risen quite a bit. While the currency’s price gains have been impressive, they have been anything but steady.
By harnessing dollar-cost averaging, you can potentially enjoy notable gains and also manage the risk of buying or selling a volatile digital currency at the wrong time.
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