Firstly, DCA is Dollar Cost Averaging and SIP is Systematic Investment Plan. I’m used to the term SIP as it’s used extensively in the investments field, especially mutual funds. So I’ll probably use more of it here. Just remember these terms are largely interchangeable.
I recently shared a tweet about initiating a SIP into MATIC.
- It’s a weekly investment of $50
- The first purchase was on 10th May. Subsequent purchases are on each Monday
- I have the option to stop this whenever possible
- I’m doing this on Coinbase, for the one reason that I’ve not seen it available anywhere else. Really hope to see more exchanges offer this
While it has been a very short time, here’s how the purchases stand currently (for ease, I’m using the end of day prices for MATIC here). Updated this since I originally posted this:
So the $300 invested so far has got me 230 coins/ tokens/ units of MATIC, which at today’s price of $1.32 is worth $303.
As you see, my purchases came at different prices. Between the two high priced purchases on the 17th and 31st May, I even got some comparably cheaper on the 24th of May.
This is exactly what a DCA or SIP does in the longer run. To put it simple, it helps you avoid the FOMO on the upside and the FUD on the downside. You just stay disciplined and let your investment do its thing. I think it removes so much of a headache in trying to time the bottom in purchases. Frankly, a market like the current one is very decent for a SIP.
You can argue that I would have been better off purchasing MATIC worth $300 on the 10th of May at 0.97. You are right. I’d definitely have been better off with 309 units, currently worth $408. If you’re great at timing the bottom, go ahead and do that. I am not. Of course, just remember that when MATIC tanked to $0.81 on the 23rd of May, our stress levels would have been slightly different.
Two clear benefits that I see of a DCA or SIP,
- Clearly you avoid the FOMO (Fear Of Missing Out) and FUD (Fear, Uncertainty, Doubt) chatter of the markets. ONE BIG BIG reason I think newcomers to the markets ought to look at this way of investing
- It’s a disciplined way of investing. Your position is being built in an up-trending, down-trending and sideways market
Just to be clear in an up-trending market, this way of investing will lose out to a lumpsum way of investing. This is why I said that if you’re an expert in timing the market, this might not be the best way of investing for you. I think of this as a SAFER way of investing.
How do you go about setting up a SIP or DCA?
- There are three exchanges I know of that offer this:
- Decide what amount suits you. It can be a 10$ a week, $50, or whatever works for you. You decide. There’s no big or small amount.
- Decide the frequency. You can choose to do a SIP or DCA on an every day basis, each week, fortnightly, or monthly. Again a lot of flexibility here. Think of this, a $50 investment every month will accumulate to $600 over the year. What could that $600 go to? (Obviously, there’s always the risk of the investment shrinking. But your purchases having come at different intervals may offset some of the pain as compared to a lumpsum investment. Again, as I keep saying, invest an amount which is not going to give you sleepless nights)
- Decide which project you want to get it. I chose MATIC. You can choose any. Remember, do your homework on this. It’s your hard-earned money. Don’t just ape in blindly.
- That’s it. You are set to go.
- One thing, the fees will be higher in this case as compared to a one-time investment. However, what you’re playing for here are bigger returns which eventually negate the impact of the enhanced fees.
Let me know what you think about this. Drop a comment or a mail. Always keen to listen. Stay safe and keep learning.
I’ll also keep this sheet updated with this investment every month.