What Is A Dollar Cost Averaging Investing Strategy

Nik:

Hi guys, I’m Nik.

Yuri:

And I’m Yuri.

Nik:

Today, we’ll be talking a little bit about dollar cost averaging.

So to start off, really want to try to take a little bit of a personal note and give our experiences and what we’ve had in the space so far in Bitcoin and in digital assets, and try to kind of relate that to you guys and why it’s important for us to be able to have some kind of methodology to be active in the markets without essentially taking our– I’ll say entire time and scope.

So for myself personally, I’ve been in finance, I mean equities markets for quite some time, relatively well versed in the topic of trading. However, I really must say that throughout my career, I’ve been searching for a way to be able to participate in the markets without necessarily being super active in them because there was always kind of projects going on, there’s lots of things there moving and it’s really tough to just find the time in the day to day life I find to be able to actually keep track and note of what the markets are doing.

So, to give you guys a little bit of a story, I entered into the Bitcoin space around 2013 I would say, late 2013, so experienced all the ups and the downs and I was actively trading during that time. Now the thing is is even though I’ve been actively trading, I also treat Bitcoin and some of the other assets as more or less investment class from that perspective. And as a result, there’s been often a lot of times where I’m literally stuck in front of my laptop, 24/7 not getting off it sometimes not getting sleep and it gets a little bit tough, it gets stressful.

So throughout my life, I have been trying to find some way to deal with the psychological aspect of active trading and I really found the concept of dollar cost averaging, which is essentially trying to buy smaller amounts over a predicted period of time in order to kind of help me with this particular issue.

So, on that topic in general, I find that it really, really helps to have a system in place for me personally. But even though that that system can be placed, it’s very difficult to uphold it on a regimented basis.

I mean Yuri, what’s your experience with trying to participate in the markets consistently over time without some kind of strategy and just kind of moving in and out of the market yourself?

Yuri:

Yes, thanks for the question. I have no experience in traditional finance markets, so my participation in the markets began with Bitcoin in late 2012. And essentially, I have tried over the years, various methods of purchasing Bitcoin and I have created some of those methods myself and participated in them in terms of brokerage, for example.

As you know, there are multiple ways of buying Bitcoin these days and these ways are multiplying. Popular ones are exchanges and there’s also Bitcoin IGMs, there’s brokerage firms out there, and I have tried them all.
And the downside of all these models is that you can never really, unless you are an experienced trader, predict when to buy Bitcoin and when directly to your position if you’re a first example, a short term or medium term investor. So, you always have to follow the market and Bitcoin is a very small market.

Bitcoin being a small market means that it is a lot easier to manipulate by larger players than other larger traditional finance markets. So, you really cannot compete with a large trader school these days use algorithmic trading and bots. So, it’s very difficult to find the exact entry and exit point out of the market.

So in my opinion, if you’re a long-term investor in Bitcoin, it’s a lot better to invest at a predetermined rate. And just if you have a salary, for example, just put aside a certain amount of money into Bitcoin at the predetermined rate; once a month, once a week, whatever it is. This will probably be the best strategy for people who have a long-term vision for Bitcoin as an investment strategy or as some people call it, the savings technology, whatever it might be in your case.

So, I completely agree with you that a dollar cost averaging or DCA is really the way to go for the average retail investor. And that’s why today on Bitcoin Twitter for example or Facebook or other social media, we can see this concept gaining traction. It’s becoming very widespread. People talk about it, everybody’s discussing auto DCA. There’s already a hashtag for that, and it’s true.
People like just to set it and forget it, they like to sit back and know that their portfolio is increasing. That every time they get a paycheck, a part of it goes into Bitcoin directly to their wallet and they can forget about it and essentially just enjoy their life, and not be worried about price readings and market fluctuations and entry and exit points and things like that. So, it’s definitely getting there and that’s how we decided to pursue this strategy as well, and that’s what we’re working on with Moontower.

Nik:

Actually, that’s an interesting topic that you mentioned, and I’ll jump on a bit about what we’re doing in just a second here actually is you mentioned that Bitcoin from this perspective is important to view on a long-term basis. And I really find that when you’re looking at the topic of investing versus trading in general, investing in the sense that you’re buying and holding for a longer period of time and you’re actually utilizing the proceeds of that whole in order to reinvest into the portfolio, grow larger versus trading for example, in and out of the market all the time is there are certain strategies that fit for both.

And I think when we’re talking about dollar cost averaging, what’s important to understand is again, that long-term perspective. So, the reason being if you’re looking at dollar cost average, just from a general perspective, it’s important that you dollar cost average into a market that’s long-term trending upwards.

A lot of people say you know like buy the dip, and that things make sense. But that only makes sense if the asset class is consistently on an upwards trajectory. So, this is why when you’re looking at certain things in the traditional markets and you’re investing in ETFs or things along that nature, you are essentially betting on the fact that the markets are going to continue to go up, which essentially based on our current economic model, that’s really their only trajectory aside from certain black swan events that can cause them to go the other way.

So that long-term perspective, I think it’s very, very key in not only understanding the definition of dollar cost average and the motivations behind it, but also how to interact with it on an ongoing basis. So for myself, as I mentioned previously, I’ve had difficulty setting up a particular strategy that I can uphold on a consistent weekly basis for example, for the exact same reasons that you mentioned is there’s so many different ways to participate in Bitcoin; buy Bitcoin, you have ATMs, you have exchanges, you have brokers, you have a lot of different other voucher systems for example as well, and that requires actually quite substantial amount of work.

If you’re looking for an exchange, for example, you have to upload your KYC documentation, you have to get verified, then you have to send a wire, the wire has to clear in a certain amount of times or when you use each transfer, whatever the case might be in whatever jurisdiction you are. And as a result of that, doing that every week consistently, it’s difficult. It was difficult for me and as a result, so you know, I kind of went, okay, I’m just going to participate more from a trading perspective and I’ll tell you here, and I’ll tell the audience as well, and that has not worked out quite as well.

I went back and I did the math. If I were to invest a certain amount per week consistently for a prolonged period of time until this date, let’s just say that my balance sheet would be looking quite different than it is right now.

But I think the real important part of this is to try to merge the concept of investing in dollar cost averaging with your lifestyle. For me, my lifestyle was pretty active. I mean, living in Vancouver, you have the great outdoors, they also have a wonderful business community as well, connect with, and I feel that it’s really tough to find the time that you need to actually be able to actively participate in this space, for example, Bitcoin.

So a system that allows the automation of such a process of being able to enter into Bitcoin or enter into another asset class over time, consistently without having to worry about a subscription-based model is very, very important. Not only is it important, I believe for just the wider population to be able to access this type of asset class, but also for myself personally.

I mean like part of the reason why Montara was created in the first place was that so we could find a solution for our problems. Along our busy day, we’re trying to find some way to actually be able to move into this asset class over time. It really speaks close to my heart when we’re talking about lifestyle when we’re talking about investing in general.

What do you feel yourself that’s really kind of sparks the imagination when you talk about dollar cost averaging in your life and in your lifestyle?

Yuri:

Well, if you are like me, you probably believe in Bitcoin’s main value proposition. So, it is the hardest money ever created. It’s the sound money of the future and it has a very high chance of becoming the reserve currency of the future. The reserve currency of the world probably replacing the US dollar or even gold for that matter, because it has various advantages over physical gold as well.

So, if you believe in all these things, then essentially, you cannot afford to not be exposed to Bitcoin. You just have to take advantage of its current low price. And by low, I mean it’s obviously not as low as other stocks and bonds out there. However, we saw that the previous all-time high was almost 20,000 USD, and right now it’s trading not less than $10,000.

So, I personally consider it a discount, although, at the same time, I do not like to predict prices and where they would go. I simply know that Bitcoin has a bright future and that alone is enough for me to start stacking sacks as they say on Bitcoin Twitter, which essentially means accumulating Bitcoin little by little until you’ll have more or less a solid portfolio. So when Bitcoin does become the reserve currency of the world, you’ll have a solid amount of it, right?

And in that world, well, I’m pretty sure you will be one of the richest people in the world if you are moved by money. If not, you will have those resources to change the environment around here. To make the world a better place because that’s a powerful thing to have “unconfisticatable” money, an asset that cannot be inflated at will.

So, this is my personal take on it. And that’s why I think that if you’re a retail investor, then DCA is the best strategy for you to get there and to take a solid position in that future where Bitcoin succeeds.

Nik:

And you know what? The fundamental aspects, I think Bitcoin or any asset class that you choose to dollar cost average into is very important. It’s a qualifier piece I think to be able to actually utilize a strategy such as DCA.

And again, speaking to that, it’s basically a market that tends to go upwards and whether it’s due through certain types of market activity from the actual institutions that are put in place, such as the traditional markets or if it’s Bitcoin where it’s actually programmed in.

So of course, there’s a deflationary model in Bitcoin, which if you look into deeper, or if you’re getting into space, I’m sure you’re familiar with. So, this essentially sets up the economic paradigm for being a very good asset class in order to actually dollar cost average into.

And I think also what the greater thing about Bitcoin is today and what it has been and what it will be. I think at least for the next foreseeable future is that volatility is inherent with the market. I mean, right now, we have a lot of things in the traditional space that is causing volatility and this provides a lot of opportunity. But it provides opportunity only for people, I think who can take advantage of it and have some type of strategy to be able to actually utilize the swings to their advantage.

So when we’re talking about dollar cost averaging, one of the biggest pieces that I think is really good for not only myself but for anybody interested into the asset class itself is the fact that you actually are able to get an immediate price for the asset because you’re buying consistently every week. You’re always buying at the very top and you’re always buying at the very bottom and everywhere in between. So as a result, you’ll get a much better, smoother average price. And that average price, again, if you look with the fundamentals of Bitcoin or whatever asset class you’re seeing into, is on an upward trajectory.

This does allow you to build quite a substantial amount of stats and be able to actually maneuver in this environment without much worry or concern for the actual price day to day, which I think is keenly important.

And I also think that from the perspective of being able to average out the price or average out the volatility, it speaks to a lot of people’s psychology on trading. I myself am very big and trying to evaluate my own personal motivations and desires, especially when it comes to financial instruments and investing. And I found that I get greedy. I get greedy, I get fearful.

And the only way for me to eliminate that from my lexicon just mentally is to be able to have something that is already mathematically constructed if you will; a plan, a strategy in order to be able to leave those emotions behind. So I don’t have to worry, “Okay, am I buying this week?”

And this is the experience that I had before that I was actually alluding to at the beginning is that I would have a strategy, I would have it set that I would try to go and buy Bitcoin every week, but one week the price would go a little higher and quite substantially.

So, you know, I’d be like, okay, maybe you know, I’ll wait a little bit to buy it. And then it rises, and of course when it turns right around and goes in the opposite direction and I’m kicking myself going, “Oh, I should’ve bought.”

So that’s why a solution that literally allows me to open up my phone, set up a schedule, and actually have it purchased for me consistently eliminates that completely. So from a psychological perspective, I really value dollar cost averaging for myself.

Yuri:

Exactly. I mean, you touched upon a very important aspect of it which is emotion. A lot of people, they cannot really control this emotional state when it comes to financial decisions on the spot. When they see the price going up just like you mentioned, they can’t really come up with a solution, with a decision that will actually benefit them on the spot because they get very emotional. When they see the price going up, the only thing they can think about is that it will keep going up forever and they can buy for example. Whereas in reality, in such a small market, as I mentioned, the price can go down the next minute.

So, controlling this emotion is very hard and that’s why when you automate the process and delegate it to a system that does it for you, you don’t have to think about it anymore. The emotion is pretty much removed from your trading methodology.

That’s why when I tried being a trader a few times, I always failed. I just could not control my emotion. But as soon as I realized that that emotion has to be removed, and you only need to follow a certain methodology, and no matter what and that will help. The thing with that is that not everybody has a very strong mind. Will power is a thing that is quite rare in this world. I know it with myself for example, and I would really love to have an automated system for it.

When we created Moon Tower that automates investing in Bitcoin, we’re essentially creating a solution for ourselves. So that’s how most businesses and services are created. You come up with a solution that would benefit you, and then you figure out, well there are a lot of people like myself out there in the world who could also benefit from such a solution. You start building it and suddenly, you see that you were right or wrong. So that’s how business works.

Nik:

Yeah, absolutely. And I think just to kind of finish off. I really liked the topic of psychology and emotion and all of this because at the end of the day, we live in a very emotionally driven world, and will power is one of those things that thrives on emotion. And I think it’s a feedback loop essentially from certain types of higher emotions, positive emotions, and negative emotions, which when you’re participating actively in a market affects you day to day.

And it’s very important kind of as you mentioned to remove that from the picture. Exactly the reason why I need Moon Tower for myself is that, I’ll be frank, it’s tough to control my emotions at certain periods of time and when you’re approaching it of course from a trader’s perspective, a trader’s lens, you have certain risk parameters of both. So, you’re able to isolate that emotion to a certain degree.

But not everybody has time to do that. And even when we do have time, it still is difficult to afford when you have other things in life that you want to do. And there are always so many opportunities that are out there and you just have to consistently choose the right asset classes in order to participate in. Bitcoin is one of the core ones I believe. But there are others that are out there and they’re quite interesting as well.

So going back to the topic of emotion of dollar cost averaging, and then Moon Tower in general, I truly feel that what we have created here is something that speaks to our hearts, to our minds, and we’re really excited for everybody else to try it as well.

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Written by Moontower

July 13, 2020

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