How Investors Combat Inflation with Dollar Cost Averaging
Inflation is at a record high 2022 has recorded rising levels of inflation across many countries, especially in Africa. Global inflation is predicted to rise to 7.5% by the end of 2022 while some African countries have recorded up to 100% inflation rate, according to a report by GlobalData.
What Exactly Does This Mean?
In economic terms, inflation is the rate at which the general prices for goods and services rise in a given country. And when prices rise at an alarming rate much more than household income, the fiat currency begins to lose value, purchasing power lowers drastically, and an economic downturn is imminent.
In other words, you can no longer afford to buy the same things with the exact amount of money earned or saved over a period. Your savings begin to lose value including your investment assets.
How To Combat Inflation With Dollar-Cost Averaging (DCA) Investment Strategy
Whether you want to save your money in a deposit account or invest it in an interest-yielding asset, it is important to save your money in a currency that is less affected by inflation and strategically invest with DCA.
What is DCA?
Dollar-cost averaging is an investment strategy used to minimise the risk associated with potential investment and it can increase the total value of an asset over a long period.
How Does DCA Work?
Instead of investing a lump sum of money into a currency or an asset at once, an investor can divide the amount into several equal quantities, and buy such asset over an extended period.
By choosing to have multiple entry points on a climbing or falling asset price, an investor can avoid buying outrightly at the top or missing out on buying at the bottom.
DCA is important for the following reasons:
- Reduces impulsive or emotional investing.
- Helps you begin investing with small funds
- Minimises the effect of market volatility by buying slowly and spreading the investment over time.
- Investors can learn more about assets over this extended period.
- Oftentimes, the total asset acquired within a specified period is higher when compared to the outright purchase with the full capital at the start.
- It is ideal for Africans and similar to cooperative savings aka esusu or Ajo. Salary earners, business owners, and frequent earners can save through DCA.
- Best investment option during a long bear season
How To Begin DCA Investment Strategy
Save your money in a good currency that hedges against inflation. USDT is a stable cryptocurrency that helps protect your fiat against inflation and you can convert your fiat currency swiftly on VIBRA including Naira, Cedis and Kenyan Shillings.
Determine a capital goal to achieve your DCA target e.g $20,000 to be saved over 2 years
Choose an asset for investment e.g, BTC, ETH, BNB, ADA
Make a plan on how to divide your capital including the frequency of purchase e.g.You can invest $200 every week in BTC despite the market price fluctuation.
Begin your purchase on VIBRA