Why Dollar Cost Averaging May Be the Smart Way to Buy Gold
Dollar cost averaging (DCA) is a popular investment strategy that involves investing a fixed amount of money at regular intervals, regardless of market conditions. By doing so, investors can pace their investments over time, while being less affected by market fluctuations – and potentially increase their returns over time.
DCA is a tested strategy that can be applied to most investment classes, including shares, exchange traded funds (ETFs) and the accumulation of precious metals, including gold bullion.
What is Dollar Cost Averaging?
Before we dive into the benefits of DCA for buying gold, let’s first define this investment strategy. Dollar cost averaging involves investing a fixed amount of money at regular intervals, regardless of the market’s performance. This means that you buy more units when prices are low and fewer when prices are high.
For example, as an alternative to investing $6,000 this year, through one gold purchase, you would spread your orders over the year, investing $500 each month. If the price of gold is low you’ll be buying more gold for your $500. If the price of gold is high you’ll be buying less gold for your $500.
Benefits of Dollar Cost Averaging for Buying Gold
Dollar cost averaging can provide several benefits for investors looking to buy gold.
1. Reduces Market Timing Risk
One of the biggest advantages of DCA is that it eliminates the need to time the market, as prices can fluctuate unpredictably. Buying in singular purchases can be risky, stressful and require time for research and contemplation. By investing a fixed amount of money at regular intervals, you have less worry about buying gold at the wrong time.
Instead, you can take advantage of market fluctuations over time. If the price of gold is high, you’ll buy less, but you’ll also buy more when the price is low. This can potentially increase your returns over the long term.
2. Disciplined Investing
Investing in gold can be emotionally challenging, especially when prices are volatile. By using DCA, you can take a disciplined approach to investing. You’ll invest a fixed amount of money at regular intervals, which can help you stick to your investment plan.
Investing in gold over time can also help you build a regular savings habit, which can build your gold portfolio over time.
3. Mitigates Emotional Investing
By investing a fixed amount of money at regular intervals, you can also mitigate emotional investing. When you invest a lump sum, it’s easy to get caught up in short-term market movements and make emotional decisions based on fear or greed. DCA can help you avoid these emotional pitfalls by taking a long-term approach to investing. You can stick to your investment plan regardless of short-term market fluctuations, which can help you make rational decisions and stay on track towards your investment goals.
4. Cash Flow
DCA is a great investment strategy when your objective is to own more gold than you can currently afford. It allows you to accumulate within a comfortable investment range, within your means.
5. Risk reduction by avoiding forced selling.
A major pitfall of investing is having to sell too early to realise your gains, because of real world expenses. A DCA strategy constructed within your means is a way of ensuring you can choose the right time to sell your investments.
So what do you need to do to set up DCA?
1. Determine Your Investment Amount
The first step is to determine the percentage of your investment portfolio you want to invest in gold. For exa mple with a $100,000 portfolio you may decide to invest 15%, or $15,000, in gold. Then, you should decide the time period over which you will make your investment (for example 6 months). Divide the investment amount ($15,000) by the number of months (6) to arrive at your monthly amount – in this case $2,500 per month. You should consider your overall investment goals, risk tolerance, and financial situation when making this decision.
2. Choose a Gold Investment Vehicle
Next, you’ll need to choose a gold investment vehicle. There are several ways to invest in gold, including:
- Buying direct title to gold bullion through Rush Gold (we manage all the storage, insurance and security for you)
- Physical gold, such as coins or bars (consider any storage / insurance costs)
- Gold ETFs, which track the price of gold (consider counter-party risk and potentially higher holding and other fees)
3. Stick to Your Plan
The most important step is to stick to your investment plan. It’s easy to get emotional about investing, especially in gold, especially when prices are volatile. However, by sticking to your DCA plan, you can take a disciplined, long-term approach to investing.
DCA with Rush
Rush Gold allows you to set up a DCA so you can build up your exposure to gold over time. When you make your first payment via either Poli or BPay within the app, you’ll be provided with your personal payment details. Then simply use those details to set up your regular investment plan – and stick to it over the long term!
- Make an order from the app using Poli or BPay to access your personal payment details (or take your existing Poli or BPay details)
- From your bank, set up regular payments using these personal details
- When we receive the funds, you will receive that value of gold into your account.
Set and forget!
