Now what is DCA, its Dollar Cost Average, and I’ve bene investing this way for nearly 5 years now, which is a long time honestly, and I still recommend 99% of people invest this way, but just recently I stopped doing it and in this video, I’m going to tell you what you need to look out for before its too late.
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1. The Idea Behind Dollar Cost Average
- It's you investing an equal amount of money, regularly over a period of time
- In normal words, you basically investing a fixed amount of money consistently
For example:
- Let's say you want to invest 20% of your income each year, and you make $10,000 dollars a year
- Well that’s going to be 20% of your income
- You could save throughout the year, and then at the end of the year invest the $2,000 or just invest each month about $166.66
What would the pros and cons, of doing the DCA way or the Lump way
2. The truth is this
- This is not a Mathematical problem, it’s a feeling problem
- And I’ll explain why in a second
Statistics show the market goes up 100% of the time, as you increase the time
- What do you mean Tommy, the market is down right now
- Year but the market has recovered from every single downturn ( 100% of the time )
- So the odds are the market will recover from this one too
So the question is not whether you will make more money if you invest it over time or all once
- The question is, how will you feel if the market goes down the next day by 30%
- Obviously, that means that you will have to do some waiting to let the market recover
- But history shows that the market will recover
The problem is this:
- When you try to pick the right time to invest ( you start to time that market and that doesn’t work )
- If you invest it over time, then at the end of that time, the market could also crash
- You don’t know what is going to happen
3. What do I recommend overall
Dollar-cost average ( has these net positives )
- No more timing the market
- Consistent investing
- Average return for years
However: Lumpsum investing
- You have your money working ASAP
- You know what your exposure is ASAP
- You are riding the historical curve ( which is up )
What do I recommend :
- If you are investing from your income ( DCA because it also prevents you from accidentally spending the money you were saving up for investing )
- When it comes to having a lump sum, I would invest that money right away, without thinking about it
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