There are countless ways to invest your money, with a range of opportunities and strategies to maximize the amount of passive income you can earn. Your risk appetite, the amount of money and energy you’re willing to invest, as well as your financial goals, all go into determining where, when and how to best invest.
One common investment strategy is dollar-cost averaging. We’ll take a look at the basics of this principle and how it applies to addy’s crowdfunding investment model.
What is dollar-cost averaging?
Also known as DCA or the constant dollar plan, dollar-cost averaging posits spreading out an investment across multiple intervals instead of one day in order to better sustain the fluctuations of a market. For example, a DCA strategy would see 10 investments of $1,000 spread across one month instead of a single investment of $10,000 on one day.
These investments are done at regular intervals regardless of the price of the asset. The idea behind it is to reduce the volatility of market changes by investing in the asset at different prices.
DCA tries to protect against a common occurrence: what if you make a large investment on a day when the asset price turns out to be high and the price drops?
Dollar-cost averaging pros and cons
DCA removes a lot of work, letting a simple strategy dictate your investment. This may appeal to those who are exceptionally busy and don’t have the time to do research, or those who are just beginning their investment journey and want a basic framework to guide them.
DCA can eliminate some of the volatility and thus risk of a market, but it can also temper your returns. The aim is to lessen some of the risk, but in turn, it can lessen some of the reward too since you may end up investing in an asset during an upward trend where an initial larger investment would have yielded a higher return.
Proponents of DCA would say it protects against unpredictable markets, while those against it would argue that the unpredictability is more powerful than DCA, so it’s not worth the effort.
Crowdfunded real estate
addy operates on the idea of crowdfunding real estate, and like DCA, crowdfunding lowers risk, in this case by spreading out the investment among more people. With real estate crowdfunding, a group of investors pool their money towards an institutional grade commercial real estate property that would otherwise be too costly to invest in on their own. Such properties, which include apartment complexes and industrial parks, can cost anywhere from $3 million to $75 million.
The average Canadian certainly doesn’t have access to such funds to invest – the average Canadian can barely afford to buy a home. However, by crowdfunding with addy, members can invest anywhere from $1 to $1,500 towards such properties with the potential to earn a healthy return.
addy and dollar-cost averaging
So how does one apply the strategy of dollar-cost averaging to addy? Well, addy regularly welcomes new investment opportunities to the platform. That means that you can decide to invest in every opportunity with a set amount in mind for each, as opposed to trying to determine the ideal amount based on the information at hand. It’s not exactly dollar-cost averaging, but the spirit is the same: spread out a consistent investment amount across time and diversify your portfolio.
addy strives to make real estate investment accessible and simple, which means we do all the heavy lifting. All you have to do is fund your wallet, read as much as you want about the investment opportunity – material includes a timetable for a potential return – and decide what, if any amount, you want to invest.