The world of mainstream finance and investment can seem confusing. Prices move and things change. Often. But that doesn’t mean your investment strategies have to. Warren Buffett, one of the best investors of all time, recommends cost-averaging (CA) to people who want to grow their profits sustainably with little to no effort. At Nuri, we think financial wisdom should be shared across all sectors and crypto is no different. Here’s why, with DCA, less is more. 

What is dollar cost averaging?

CA is a strategy that works for both billionaires like Buffett and first-time investors. While the name sounds like financial jargon, all cost averaging involves is picking an asset, working out how much you can afford to invest and then buying it at regular intervals. Simple! 

For example, you have been using a new software for working from home during COVID-19 and want to buy some shares of the company that produces it. You can afford to invest €100 every two weeks. It doesn't matter whether the price goes up or down, every two weeks, you invest the same amount. While it could seem like you are overpaying at times, the idea is that all stocks tend to move in the same general direction, meaning you will be paying a lower price per share overall. 

Why’s it good? 

Mainstream finance promotes a brutal culture of long hours, total dedication to a corporate hierarchy and lethal stress levels. In-house analysts at big institutions often have a ride-or-die approach to what is known as “timing the market”, that is, knowing the right moment to buy. But as numerous financial crises and ruined careers have shown, this guesswork comes at a cost in addition to being, on average, not profitable. Fortunately, strategies like CA mean that saving can be stress-free. 

Sometimes the opinions of two billionaires can help put things in perspective. Buffett might well be worth just shy of €75 billion but as Elon Musk said, his job, reading company reports, is kind of boring. While Buffett says those who are prepared to dive into financial reports for days at a time should go ahead, he recognises that it’s not for everyone. Which is why he recommends CA for everyone else.

For those that haven’t noticed, it’s 2020 and normal rules have been suspended. The markets nose-dived after the pandemic took hold but have bounced right back into a bull market after news of vaccines being available. Cost averaging is an effective method for uncertain times because the long term commitment to purchasing an asset reduces the impact of volatility over a longer period. That’s why many of the world’s most prominent savings schemes, such as 401k, use dollar cost averaging principles to create wealth. 

Straightforward Investing

While Buffett might be famously anti-crypto, that doesn’t mean the no-nonsense Nebraskan’s recommended investment strategy is as well. The crypto markets experience more than their fair share of volatility and that can be frightening to some investors.

With CA’s ability to even out price fluctuation long-term, it is a seriously effective strategy for investing in crypto. Research shows that up to 80% of market volatility can be mitigated by regular investment intervals, something that removes the greatest worry for people looking to break into crypto. 

Crypto is all about putting people in control of their finances, but the initial learning curve can sometimes prevent effective investing. Here’s where CA really stands out. The control that CA gives you over how much and how often you buy allows your knowledge to develop in tandem with your investment

In our fast-moving world, most people don’t have the luxury of being able to monitor their assets 24/7. That’s why Nuri is launching a monthly savings plan for bitcoin and ether. All you need to do is choose how much and how often to invest. After that, set it, forget it and let your wealth accumulate.