Maybe you’re just starting to invest or you think of yourself as an expert. Either way, you’re looking for a way to invest that is easy and maybe a little boring. Well, you’ve come to the right place, we’ve got two words for you: cost averaging. This is one of the best ways for the investor who is in it for the long haul. Read this article to learn how you can start investing in your sleep.
What is cost averaging?
Let’s be honest, learning to trade and guessing when it’s the right time to buy and sell, can be difficult for all traders, let alone rookies. That’s why if you set up a savings plan with Bitpanda Savings, the funds will get deducted automatically from your bank account which is very convenient for those looking to buy Bitcoin (or any digital asset) regularly.
In a nutshell, by acquiring Bitcoin over a long span of time continuously, you are able to level out market volatility. Buying Bitcoin, or any digital asset you like, on a weekly or monthly basis means you are less likely to suffer from short-term price fluctuations. You can read deeper into that here.
Okay I get it, now what does this mean for me?
So you’ve finally decided to get a savings plan, good for you! But first, you have to understand that investing is always a risk. There’s no fool proof way to invest but there are some ways you can increase the odds! Here’s an example:
Say you want to buy stocks from a banana company because you heard bananas are the new hot thing right now. A share of a banana stock is 1,500 euros, but maybe you don’t have 1500 euros right now to spend. So instead you set up a Bitpanda savings plan and spread out your payments over a six month period. So it looks like this:
Pretty simple, right? This table shows that it’s better to invest over time rather than a lump sum. However, it’s just as easy for it to go the other way as well, that is, you could lose money too. Something else we should mention is that you don’t have to invest a lot of money like the table above. With our SEPA savings plan, you can invest as little as 25 euro a month to get started!
Pros of cost averaging:
- Affordability: Whether you’re a student, a stay-at-home parent or like most people, don’t have a lot of spare money after paying your bills, it’s just simply not possible to invest big lump sums of 6,000 euros. With cost averaging, you can tailor your investments to suit your income and lifestyle.
- Convenience: All you have to do is set the payments up once and you’re set for the next few months! It’s literally like investing in your sleep, you can make money without knowing it!
- Less stress: Cost averaging takes the emotion component out of decision making. No more stress about whether you should buy today, tomorrow or if you should've bought last week.
Cons of cost averaging:
- More premiums: Unfortunately, fees are just a normal part of investing. With a lump sum payment, you pay less in premiums than with multiple payments. We do have ways to lessen the premiums you pay on our platform. For example, when you buy BEST, you can save up to 25% on trading premiums. Not only that, but with our Bitpanda Savings plan you can now pay with SEPA Direct Debit mandate (when before it was only possible via credit card) so that means no additional payment fees!
- A lump sum may earn you more: Another risk is that you may miss out on financial gains that you otherwise would have earned if you made a big lump sum investment and the stock rises. But this is all relative as it relies on the right timing which no one can know. And in theory, using cost averaging should make you come out way ahead of the lump sum purchase if the stock rises again.
Try it out
All in all, cost averaging is a great way to start investing for long term gain. Its automatic deduction makes it simple, stress free and it’s a good introduction to the investing world. Of course, there’s always going to be risks, but that’s what makes it fun!
Are you inspired and want to set up your very own SEPA savings plan with no fees? Click here to learn more about it.