Dollar-cost averaging: build and check a buying plan
Dollar-cost averaging (DCA) means spending a fixed amount at regular intervals. It spreads entry dates, not the risk of choosing a failing asset. You buy more units at lower prices and fewer at higher prices; neither a profit nor a better result than buying at once is guaranteed.
Your task: draft an unfunded purchase schedule, calculate the average cost including fees, and define when to review it.
Follow the money through three purchases
First purchase: price $10
Assume an imaginary token and a $100 total budget each time. A $1 fee leaves $99 to invest: 9.9 tokens. All prices and fees here are examples, not live offers.
Second purchase: price $5
The same $100 budget and $1 fee buy 19.8 tokens. The cash commitment stays fixed; the number of tokens changes. Doubling the budget after a fall would be a different strategy.
Third purchase: price $20
After the $1 fee, $99 buys 4.95 tokens. Across all three purchases you spent $300, including $3 in fees, and received 34.65 tokens.
Walkthrough: write the plan before automating it
Define a sustainable budget
Record the asset, amount, dates, funding source and end or review date. Keep money needed for bills and emergencies separate. Set a maximum total exposure; a recurring purchase should not silently become an unlimited commitment.
Check the actual buying route
Preview the recurring-buy price against the spot quote. Include spread, payment charges, trading fees and withdrawal costs. Check minimum order sizes, custody and supported withdrawal networks. A convenient automatic service may cost more than a manual order.
Record and review
Keep each execution price, fee, token amount and receipt. Confirm what happens if funding fails. Review affordability, custody and the original research on scheduled dates. Pause for compromised access or a broken investment case; a lower price alone does not establish value.
Worked example: average cost is not average price
Divide the entire $300 cash outlay by 34.65 tokens: about $8.66 per token including purchase fees. The simple average of the three quoted prices is $11.67 and answers a different question. This calculation excludes withdrawal and selling costs and is not a tax-basis calculation; local accounting rules may differ.
Three assumptions to challenge
DCA always beats a lump sum
If the price rises throughout the schedule, investing available money earlier can buy more units. Spreading a lump sum leaves cash waiting. Investing from future income is different: that money was not available at the start.
A schedule makes an asset safe
Repeated purchases do not fix fraud, permanent loss of demand, dilution or platform failure. Concentrating every instalment in one token does not create diversification.
More frequent is always better
Fixed charges can dominate small orders. Four $25 purchases with a $1 charge each spend 4% on charges; one $100 purchase spends 1%. Their market timing differs too, so fees alone do not settle the choice.
Try it: a lower average cost can still mean a loss
You hold the example’s 34.65 tokens after spending $300. The price falls to $6. Selling the whole position would cost another $4. How much cash would remain, and how much would you have lost?
Reveal the calculation
34.65 × $6 = $207.90 before selling costs. After $4, you receive $203.90: $96.10 less than the original $300. DCA did not prevent a loss. This simplified example excludes taxes and any other costs.
