Read on Twitter
Lots of people talk about compound interest being one of the greatest things around.
But I want to talk about
*dollar-cost averaging*
I'll explain...
But I want to talk about
*dollar-cost averaging*
I'll explain...
Here's a graph showing the share price of a company.
(I know what you're thinking... but I'm an accountant so drawing isn't a natural skill
)
(I know what you're thinking... but I'm an accountant so drawing isn't a natural skill
)
** bUy lOw SeLL hIGh **
Everyone wants to buy low and sell high
Because that makes you the most money $$
Everyone wants to buy low and sell high
Because that makes you the most money $$
Getting the timing is hard because you never know when the share price has hit the top or bottom.
You might hit it like this
You make a gain, but it's nowhere near as much as before
You might hit it like this
You make a gain, but it's nowhere near as much as before
Or more likely 
Dollar-cost averaging means buying smaller amounts at more regular intervals.
So, if you had $500 to invest then you might invest $100 every month for 5 months (example).
Here's what that would look like (red arrows = price you invested $100)
So, if you had $500 to invest then you might invest $100 every month for 5 months (example).
Here's what that would look like (red arrows = price you invested $100)
It helps to add some numbers
Now see. If you'd invested $500 in full in month 3, you'd have paid $1.48 per share
But you're smart. You dollar cost averaged.
That means the average price you paid was $1.32
Now see. If you'd invested $500 in full in month 3, you'd have paid $1.48 per share
But you're smart. You dollar cost averaged.
That means the average price you paid was $1.32
BuT BrO I cOuLd hAve BoUghT aT $1.20
Sure, but when the price was $1.20 you didn't know if that was a spike or a dip.
You could have easily gone all in at $1.48
Dollar-cost averaging reduces the risk of you going all in at a high price, not make you a fortune teller!
Sure, but when the price was $1.20 you didn't know if that was a spike or a dip.
You could have easily gone all in at $1.48
Dollar-cost averaging reduces the risk of you going all in at a high price, not make you a fortune teller!
Why now?
Free trading platforms have made it possible for the everyday investor to dollar cost average because it costs the same whether you do 1 trade or 5 trades -> £0!
*mandatory insert referral link here*
Free trading platforms have made it possible for the everyday investor to dollar cost average because it costs the same whether you do 1 trade or 5 trades -> £0!
*mandatory insert referral link here*
And yes, it's still relevant when you're investing for the long term.
You could put your life savings in $TSLA* and it could go pop next week.
Or you could dollar-cost average it and reduce the risk
*dont do this
You could put your life savings in $TSLA* and it could go pop next week.
Or you could dollar-cost average it and reduce the risk
*dont do this
It's why monthly investing is such a great idea. Smooth out the volatility.
Thank u for listening.
Thank u for listening.
For everyone* asking in my DMs, here's my referral link for trading212:
http://www.trading212.com/invite/FMOAt3oW
*no one
http://www.trading212.com/invite/FMOAt3oW
*no one
