Dollar cost averaging

When I got my first full time job after finishing college I got sent some materials about retirement planning and information about available funds I could invest in. I learned that mutual funds worked like stocks in the sense that you purchased shares in the funds and the value of an individual share fluctuated a bit with the market. The mutual funds I had available to me all discouraged market timing, and instead encouraged clients to go with the dollar cost averaging strategy.

Dollar cost averaging simply means that you purchase shares in a particular fund or stock on a regular basis, such as once a month. Usually you allocate a set amount of money, say $300, each month. When you buy, you don’t worry about the share price; you just buy as many shares as you can with the amount of money you have allocated. Often the buying process is automated and takes place on the same day each month. Over the course of many months of purchasing you will buy shares at different prices; sometimes you will buy low and other times you will buy higher. But in the long run it will make no difference in terms of how well your investment performs. The hope is that the value of the fund trends upward over the time that you hold it, meaning that no matter what price you paid to buy in, a year or two later, the price is going to be higher. Once you’ve determined that the mutual fund is a good one, any price is a good price for you to buy in. In contrast, if the fund is a bad one, then any price you buy in is a bad one.

I am finding the concept of dollar cost averaging to be quite applicable to the cryptocurrency world. In this case, though, I’m selling, not buying. I earn Devcoins and Bitcoins from various writing gigs, and my goal is to invest or simply hold half of my earnings and sell the other half so I can pay my fiat bills. I recently was fortunate enough to sell a number of Devcoins near the height of a pump and before the price of Bitcoin dropped to its lowest in the aftermath of the Mt. Gox fiasco. This provided me with enough fiat that I didn’t need to trade out again for a couple weeks.

The problem, though, was that after the pump was over, the price of Devcoin kept going down and down. Because I didn’t really need the money, I held off on selling. I also wanted to ride out the Bitcoin low. But the price of Devcoin did not recover in time for me to need the money and have to sell. So I ended up selling very low in order to get some cash. In retrospect I would have been better off selling my Devcoins as I earned them so that I could have enjoyed some better prices in the aftermath of the pump. It’s certainly fine to ride out a low, but there comes a point where trying to time the market ends up meaning you sell low.

I learned two things. The first is that I do not have to sell both my Devcoins and Bitcoins at the same time. In fact, since I get charged extra for the fiat money transfer to my bank account it makes sense for me to make fewer bigger orders than to make more frequent smaller ones. But this does not apply to trading Devcoins into Bitcoin, so I can trade those out daily or even hourly if I so choose. The second is that I’m going to do better in the long run if I stick to my plan and use dollar cost averaging. Sometimes I will sell low, but other times I will sell high. It will average out in the end.

The main thing I save myself if I just stick to my plan is stress. If I know that I’m going to place orders once or twice a week, and I just do that, then it takes out the agony about when to sell. Right now the price of Devcoin is awful and I do hate to sell so many of them for so little. However, part of my plan is that I am holding back half of them either for long term hoarding or just in hopes of being able to sell at a better price later and use the proceeds for a Bitcoin investment. So I can be happy that half of my Devcoins will not be sold at gutter prices. But the ones which I need to sell, I just need to do it and not worry about the price. Even with the recent depression in the Bitcoin price and the current gutter Devcoin price, I’m doing quite well with the fiat proceeds. I have good reasons to want a steady flow of fiat income right now. Although not my sole source of income, my earnings from the Devtome do form an important part of my household’s income. The income level fluctuates wildly, but it is income, and it is really helping me to kick butt with the bills and the consumer debt so I have no complaints about it. I just realize that I need to take my profits and not worry about the prices. It’s actually well worth it to take a hit on profits in order to eliminate or reduce stress. I do not have the energy to be constantly monitoring prices and trying to time my sales to take the best advantage of them. Sure, if I happen to log on to Cryptsy and find there’s a massive Devcoin pump going on, I will definitely take advantage of it. But I also have to be willing to sell more Devcoins the following week when the prices have been cut in half following the dumping stage. I have found from experience that trying to hold out for a better price adds considerably to my stress levels without really improving the cash flow. In fact, holding out disrupts the cash flow, which adds to the stress.

I believe the crux of the issue I’m dealing with is that in life there are just so many considerations to take into account at any given time. Some of those considerations work in opposition to one another. A simple example is when the price of Devcoin is high but the price of Bitcoin is low. In my mind I want to sell both Devcoins and Bitcoins high, but in reality it doesn’t often work out that way. I’m rarely if ever going to max out on both prices at any given time, which is why I’m telling myself to quit worrying about it. And there are so many more considerations besides the prices which impact the quality of my life. If I choose to obsess over the prices of my cryptocoins, then I may be missing out on some opportunities to be truly present with my children that I would have if I’d just bite the bullet and sell and be done with it. Maybe in one case I lost a couple hundred dollars by not timing the market. But if I still gained enough from my trade, then that “loss” is well worth it if what it bought me was a freed mind to fully engage in the next thing, especially if it is quality time with my children.

One of the things I am finally able to do now that I have this income stream is to aggressively hammer away at consumer debt. All the overdue bills have been paid so now it’s a matter of keeping up with ongoing bills, allocating enough money for daily expenses (and a few fun things), and putting the rest to work chipping away at the debt. A number of my debts have very reasonable interest rates, but a few do not—they are credit card balances which got out of hand because we still needed to buy food and gas to get to work even when the paycheck wasn’t enough. If I have the opportunity to trade some Devcoins for fiat now and then use the proceeds to pay down some debt, but instead choose to hold out for a better price later, I very well may get that better price (though the price could just as easily get worse), but each day that I am not making that payment is a day in which more interest on the balance is accruing. The sure thing is that the more I pay off, the less interest I’ll be paying. There are times when it’s just better to go with the sure thing.

Even more importantly, each time I cash out for fiat, it represents that much more fiat value to what started off as my fun crypto hobby. If that hobby were to end abruptly by say, Bitcoin becoming regulated out of practical existence in the US, then at least I am left with the good I was able to do with the fiat proceeds. Today I am under far less financial stress than I was just a few months ago. There is no price to that kind of relief. The best thing I can do is continue to use my cryptos to move me and my family further in that direction.

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