For beginners, stepping into the financial markets can feel like a daunting task. The uncertainties surrounding how many shares to buy and when to buy and sell can cause significant anxiety and stress. Enter dollar cost averaging (DCA), a powerful investment strategy for long term investors. We will explore the essence of DCA, uncover its numerous benefits, and introduce you to the Share Invest app that makes DCA investing simple.
What is Dollar Cost Averaging?
Imagine you have some money to invest, and you want to be smart about it. Dollar cost averaging is a way to invest that helps you avoid trying to predict if the market will go up or down. Instead, you decide to invest a fixed amount of money at regular times, like every month. This way, sometimes you buy more shares when prices are low, and sometimes you buy fewer shares when prices are high. Over time, this helps balance things out and can make your investment grow steadily. It’s like taking small steps forward on a path instead of trying to jump really high all at once.
Example of DCA
Imagine you strongly believe in companies that work with renewable energy, like solar and wind power. Let’s say you decide to invest $20 every week into a Renewables themed portfolio. If you kept this up for the past 5 years, you would have invested a total of $5,220. And guess what? Today, your investment would be worth $13,572! That’s an impressive gain of 160% in just 5 years!
Benefits of DCA
- Less Stress about Market Timing: DCA eradicates the requirement for emotional decision-making by following a predetermined schedule. By automating your investments through DCA, you can alleviate the pressure to time the market and make consistent, logical decisions.
- Beginner friendly: With DCA, you have the flexibility to start with as little as $5 per week. This accessibility allows individuals with limited financial resources to embark on their investment journey without feeling overwhelmed.
- Less risk: The market is known for its high volatility, with significant fluctuations in both upward and downward directions. To avoid getting caught in the unpredictable swings, it is wise to leverage the benefits of DCA. By taking advantage of DCA’s “averaging effect,” you can balance your investments over time, effectively reducing risks associated with market volatility. This strategy helps safeguard your portfolio and promotes a more stable investment experience.
- Disciplined Approach: DCA promotes a disciplined approach to investing. By committing to regular investments, you develop a habit of consistent saving and investing. This discipline helps you stay focused on your long-term goals and resist the urge to make impulsive investment decisions based on short-term market fluctuations.
How to get started with DCA using the Share Invest app
Share is the simplest way to invest using DCA. On Share you can go from cold start to having a long-term, recurring portfolio up and running in 30 seconds.
Share Invest offers users a selection of pre-designed, themed Strategies. Whether your interests lie in popular subjects like Renewables and AI or renowned investors such as Nancy Pelosi or Warren Buffett, Share Invest provides ready-to-use baskets tailored to those themes. This convenient feature saves you the hassle and time of conducting your own research, allowing you to invest with ease and confidence.
Included in the app is a user-friendly simulator that allows you to create customized baskets by dragging and dropping individual stocks or ETFs. By utilizing this simulator, you can visualize the potential returns of using Dollar Cost Averaging (DCA) for your investments. It calculates and displays how much profit you would have accumulated over time using the DCA strategy.
After creating your themed basket, you have the flexibility to determine the amount you wish to invest in it every week, starting as low as $5. For instance, if you have a basket consisting of 10 stocks and decide on a weekly investment of $10, the Share Invest app will automatically purchase $1 worth of shares in each of the 10 stocks every week. This automated process simplifies DCA and makes investing a hassle-free experience.
