One of the main difficulties in investing is finding the right timing. When is the highest price to sell? When is the lowest price to sell? In the end, many stock and mutual fund investment tips use a method called dollar cost averaging.
Dollar cost averaging is a routine investment strategy within a certain period with the same amount of investment, regardless of the buying/selling price of an investment instrument.
You can also benefit from market price movements in this way.
Why Dollar Cost Averaging Can Be Profitable?
For example, say you want to buy stock X. However, you don't want to put all of your money in at once, or you don't have a lot of money.
You can commit to a DCA strategy by investing IDR 200,000 per month for 5 months. For example, here's the calculation:
- Month 1: The initial share price is $1, you buy 2 lots.
- Month 2: Share price increase by $2, you buy 1 lot.
- Month 3: Share price drops $0.5, you buy 4 lots.
- Month 4: The value of the stock price increases by $0.58, you buy 3 lots.
- Month 5: The final share price is $1, you buy 2 lots.
At the end of the 5th month, you get 12 lots at a price of $100. If you immediately invest $100 as usual in the first month, you can only get 10 lots.
That way, you can also get 2 lots of profit with the DCA strategy, right?
DCA Strategy Advantages and Disadvantages
Of course, DCA's investment strategy has its own advantages and disadvantages. Here's a review of the advantages:
Reducing the Emotional Aspect of Investing. When you use the DCA strategy, the form is more routine. It doesn't matter if the price goes up or down, you just have to buy.
That way, when people are competing to sell because the price is down, you don't get carried away by emotions and can instead see it as an opportunity to get more shares at a cheaper price.
Preventing the Risk of Wrong Investment Time. Because DCA is routine, there is no such thing as the wrong time to invest. If you invest it little by little, then over time you can return your capital.
Eits, but make no mistake. DCA is also not immune from weakness.
Trend of Market Value Rising. In general, market prices continue to rise. This means that if you buy up large amounts of all at once, you will be more profitable in the long run.
However, with DCA, you don't buy in large quantities but "in installments" so the profits are gradual.
Passive Strategy. This strategy makes you a passive investor. You also do not respond to market situations and conditions that are constantly changing, for example if there is an acquisition, an economic crisis, or other events that can affect prices.
So, Are You Suitable for Using the DCA Strategy?
Usually the DCA strategy is suitable for those of you who don't want to be complicated and want to be more passive in investing, but still get little but sure profits.
Before deciding, you can ask yourself
How much money do I want to invest? If you have a lot of “cold money” (money that is not used other than monthly expenses, emergency funds, insurance funds, and other installments), then you may be more suited to another strategy. But if your "cold money" is a bit off, the DCA strategy might be for you.
How often can you set aside money? DCA is only suitable if you can regularly set aside cold money.
What is your investment instrument? Portfolio diversification is important. Even when you use the DCA strategy, you can try it for only one type of investment instrument, and use another strategy for other investment instruments. That way, your risk is reduced.
The most important thing is that you stay consistent and committed to saving. That way, the dollar cost averaging strategy is also effective and effective for your investment. Happy investing, SUPERjuang Friends!
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