7 February 2022
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When we talk about investment, we generally draw 4 categories:
The DCA is generally used in conjunction with the other three forms of investment: for example, an investor will choose the project because it is at the heart of trends, while committing a small sum every month, thus using both the momentum investment strategy and the DCA.
A strategy already used in traditional finance
The origins of DCA lie in linear investmentA major example is the famous 401(k) plan, a retirement savings scheme widely used in the United States.
The principle is simple: companies offer their employees the opportunity to invest part of their monthly salary in a stock market portfolio.
In this way, the employee builds up a pension, on the one hand by putting money aside, but can also decide to invest in promising stocks and thus make the money invested grow.
In the United States, nearly 40% of workers have invested in their 401k plan, proving that this investment strategy has many attractive features.
Because linear investment has been convincing for over 70 years.
In 1949, economist Benjamin Graham published The Intelligent Investor, in which he uses the term DCA, dollar-cost averaging, for the first time.
The method is brilliant in its simplicity: instead of researching the price of an asset hour by hour, or day by day, and trying to predict whether it will be higher or lower the next day, only to throw all your wealth into it, Graham suggests smoothing out your investment.
Every week, or every month, dedicate the same amount to the purchase of the same asset, whatever its price.
A definitive impact on the purchase price
Since 1949, numerous studies have been carried out on the performance of the DCA.
All agree on one thing: in terms of probabilities, using this strategy would improve the performance of any investment.
Let’s take an example: on Monday, you decide to invest €1,000 in bitcoin, because the price is at its lowest.
But the following Monday, the price drops.
Then it drops again.
Your purchase cost, however, remains unchanged. From now on, no matter what the bitcoin price, your purchase price remains the same.
The other option is simply to invest small amounts over a long period of time. Whether the price goes up or down, your purchase price is constantly changing and you can continue to influence it, either by stopping buying if you reach a price you’re no longer satisfied with, or by continuing to buy over the long term.
Creating a good habit
Did you know that the French hold the fewest financial products in Europe?
Yet the rest of Europe has understood that investing throughout one’s life maximizes the chances of long-term financial stability.
The proof is in the 401(k) we mentioned earlier.
A recent study has shown that a classic investment has a strong impact on an investor’s psyche: he will experience such strong emotions, that he will tend to space out his investments more and more.
And in the event of a poor investment, they tend to stop investing altogether.
With DCA, however, the same study showed that the investor will tend to invest more than he had originally planned, often because automating his investment means he is less prone to worry or regret.
Whereas the classic investor will tend to rush to sell all his assets after a price drop, the DCA investor will have established a good habit: that of not letting his uncertainties guide him.
Bear market: when DCA comes into its own
In the midst of the bear market, many potential investors may be doubting the wisdom of buying crypto-assets.
And we understand: what if the price starts to plunge even further?
Or what if it started to rise, leading to a quick sale, only to plunge even further?
This is where the DCA makes all the more sense: if the share price plummets, the investor is ultimately delighted: his average cost is only falling.
On the other hand, if the share price rises, the investor can be sure of having enough time to see when his average cost would justify a sale.
DCA at Coinhouse
As you can see, Coinhouse loves DCA, and that’s why we’re now offering you the Recurring Purchase feature.
No need to spend hours scouring the market for the perfect moment, with Coinhouse’ s Recurring Purchase, your long-term investment strategy becomes automated.
Activate the option on three cryptos from our catalog: bitcoin, ether and USDT, and schedule your purchase in three clicks.
Other assets will soon be available to help you optimize your crypto investments.
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Investing in crypto-assets carries risks of liquidity, volatility, and partial or total capital loss. Crypto-assets held are not covered by deposit and securities guarantee mechanisms.
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Coinhouse SAS with a capital of €210,000, RCS Paris 815 254 545, headquarters: 14 Avenue de l'Opéra 75001 Paris – support@coinhouse.com. Registered with the AMF for activities related to the purchase/sale of digital assets against legal tender, the exchange of digital assets for other digital assets, and the custody of digital assets for third parties under the registration number: E2020-001.
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