Monday, 18 May 2015

What is Dollar Cost Averaging?




There is  a time honoured strategy for buying precious metals, and that is dollar cost averaging.

 When it comes to investing in any market, timing when to buy into or sell out of an investment becomes an important decision.

After all, even the best professional traders can’t accurately pick the top and bottom of the market, it is a well known fact that even the best traders only have a 55% success rate.

With the ongoing price volatility in the precious metals, you may want to consider how dollar-cost averaging can help you smooth out the price at which you enter the market.

By sticking to a regular investment plan, you’ll be using the volatility of the market to your advantage. This simple concept is known as dollar-cost averaging (DCA)

HOW DOES DCA WORK?

Dollar-cost averaging involves buying gold and silver at different prices by making regular purchases over time.

You purchase more ounces when prices are lower, fewer when prices are higher, and your cost of investing averages out over time.

Here’s how it works:

1.         Divide:

Take the total amount of money you are prepared to invest and divide it by four or five (4-5 intervals being a good entry period). You can use that amount to make your purchases at each interval. For example, if you had $100,000 to invest, you set aside 5 lots of $20,000 buy-ins.

2.         Invest:

Consider making your purchases around the middle of each calendar month, as that is normally when the best buy-in price points for metals occur. In our example, you would invest $20,000 in the middle of each month, for 5 months.

3.         Stay Calm:


If you use DCA, it becomes less important for you to choose the “perfect” time to make your investments. By consistently depositing relatively smaller amounts of money, you reduce your vulnerability to price fluctuations and free yourself from the worry of trying to “time the market.”

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