What is Dollar cost averaging and how does is it related to gold?

Here’s an example of how most people buy gold

Anyone who watches and follows the markets knows how unpredictable they can be especially in times of global crises. Investors need to know how to take the good and the bad. Those who succeed are the ones that are able to mitigate the risks.

What is Dollar cost averaging and how does is it related to gold?

One way of doing that is toinvest a predetermined amount of money into an asset like gold at regular intervals regardless of what the price might be. This is called dollar cost averaging.Generally, you stand to gain a better return on your investment if you stay longer in the market. This is why savvy investors prefer a strategy like dollar cost averaging over the long term instead of trying to predict the future of gold.

Why is gold cost averaging important now?

Gold has been on a record-breaking streak for the past 6 months, one expects the price to fluctuate as the world learns to adjust to living with COVID-19. No one really knows where the price will be next month or next year because there are so many other variables that could change the way things are in the precious metals market.

With dollar cost averaging, you invest a fixed amount of money on a schedule instead of making one investment in one go. The point is to spend time in the market than outside trying to time it.

Here’s an example of how most people buy gold

Let’s say it 2006 and you have some money you would like to invest. You are interested in gold but you reckon, you should wait a bit because it looks like the price will go down to $700AUD an ounce. A few weeks pass and the price gets to that level but it bottoms out. Whilst you are still hoping for the price to go down so you can buy low, it doubles and from there on it just keeps rising. You, the market timer are left out not the guy who adopted the dollar cost averaging strategy is reaping the rewards. The bottom line is exposure is more important than trying to time market movements.

How does the gold averaging strategy work?

If you have $10,000 AUD to invest you would put say $1,000 AUD in one stock every month.

Let’s say the stock sells for $50 AUD a share,so $1,000 AUD gives you20 shares.

If the share price drops to $25 AUD, another $1,000 AUD buys you 40 shares.

If on the third month, the stock price rises to $40 AUD a share, you can get 25 shares.

This now means you own 85 shares of the stock with an average share price of $35.29 AUD.

If you had put the entire $10,000 AUD at the beginning, you would have spent $50AUD per share. However by employing dollar cost averaging one share costs $35.39 AUD.

This theory that is used in buying shares can also be used when buying gold bullion.

Whyuse this method?

A lot of gold dealers offer dollar cost averaging as a strategy for customers to invest in gold by allowing you to buy different size bars to suit your budget.

Dollar price averaging is advisable for unpredictable and volatile market conditions. It helps mitigate investment risks by averaging market lows. This strategy is helpful for investors who want to build their savings over a long period of time. The strategy is applicable especially to long-term investments like mutual funds, superannuation and gold.

When you use this strategy you won’t have to wreck your brain trying to figure out if markets are going up or down.

However, one must note that this strategy works on the assumption that stocks or gold prices will always go up eventually.The strategy does not protect investor from falling markets.

Right now gold is doing very well. It has hit record highs and is continuing its upward trajectory. The gold price roseby more than 18.83% in Australian dollar terms over the first six months of the year. There has never been a better time to sell or buy gold like right now.

If you want to get into the gold investment game you need to do as much research as possible, study various strategies and pick the one that will serve you well in the long run.