Predicting the market, and especially the price of gold, is no easy feat as it can be influenced by multiple factors at once.
Unless you’re an expert investor with experience in precious metals, there is little chance you would be able to track enough of these changing factors to make an informed choice.
That’s why we don’t usually recommend trying to time the market. Sure, it can potentially lead to bigger profits, but also bigger losses, when not done properly.
But you can make things simpler by choosing the right, time-tested investment strategy.
When buying gold and precious metals, there are a few different strategies you can employ, but the Dollar-Cost Averaging, or DCA, may be the best and most convenient way to do it.
What is the smartest way to buy gold?
Actually, you might need a crystal ball to answer this question.🔮
But the most accurate answer would be: it depends on your investment strategy and needs.
At the end of the day, every investor is ultimately looking for certain benefits; but not all investors will have the same budget and level of risk they’re willing to take.
Let’s say you want to invest in gold for profit: in this case, the rule of thumb is to buy low and sell high, as practically with any other investment. But for this, you will have to try to predict the market, which is not an easy thing to do.
Of course, you have plenty of resources that can help you improve your knowledge and chances of success, including various indicators and investment books.
But, in reality, even experienced investors still struggle to choose the right time to buy and sell.
You know, as Warren Buffet once said, “The only value of stock forecasters is to make fortune-tellers look good.” 🤓
If that rings true, and you would prefer to avoid the risks of trying to time the gold market, a good option could be to stop thinking about “when” to buy and focus on “how often”.
What does it mean for investors?
If you want to buy gold as a long-term save haven and grow your gold savings, the best time to buy gold coins or bars is essentially anytime.
And that's where the DCA strategy comes into play.
What is the DCA strategy and how does it work?
In essence, the DCA strategy is simply choosing to buy a certain amount of gold at regular intervals, regardless of its price.
If this may look counterintuitive to some, it isn’t.
Here’s how it works:
Let’s say you decide to invest $500 in gold every month. This means that each month, regardless of the price of gold and its latest fluctuations, you will buy $500 worth of the metal.
Of course, this also works for $500 a week or $1,000 a year, the amount you invest doesn’t really matter, the real goal is to do it as regularly as possible and to keep doing it for the long term.
💡The DCA strategy and gold
Given that gold has performed well over the past 20 years, with an average annual gain of more than 8%, it is not surprising that DCA is quite a common strategy for precious metals investors.
It is generally accepted that this strategy can enhance an investment's performance, especially if its price tends to rise over time, which has historically been the case for gold.
Of course, remember that, by itself, this strategy cannot protect investors against the risk of declining market prices.
So if you really want to make the most out of the DCA investment strategy, make sure you have these 3 things:
- Patience: Dollar-cost averaging should be viewed as a longer-term investment plan. This essentially means that you are continuously investing smaller amounts of money that do not significantly affect your day-to-day life, while still growing the value of your portfolio.
- Commitment: Whether you decide to invest once a month, once a week, or every quarter, it should be done consistently, no matter what happens in the market, in order for it to work.
- Capital: When you think about investing in general, you should see it as a long-term venture. So you might still need to set aside some money, depending on your budget and personal situation. Experts recommend that you have 3 to 6 months worth of expenses put aside in your emergency savings account before you start investing seriously in practically any asset, bet it precious metals, crypto, stocks, etc.
Now that you’ve learned how the DCA strategy works, you might as well want to know what potential returns it can bring you if you use it to build your gold and precious metals savings.
💡The DCA Strategy: Real-life example
Imagine three different investors buying $500 worth of gold every month, each at a different time, between 1972 and 2022.
Every year, Amanda, our first investor, buys gold at the highest price, Abraham at the average price, and Harry at the lowest market price.
Each of them invested $306,000 in gold over these 50 years.
Now let’s assume that, in 2022, they decided to sell all their gold savings. That’s what each of them would get at the end:
Amanda: $1,429,925 (bought at highest price)
Abraham: $1,665,702 (bought at average price)
Harry: $1,992,833 (bought at lowest price)
As you can see, even Amanda, who bought gold at the highest price every month, still got a profit of over a million dollars.
This example clearly shows that the DCA strategy really works if you are consistent with your investment.
So what’s the bottom line?
With the DCA strategy, you basically don't have to worry about "timing the market,” because you'll be able to get an average purchase price over time, ensuring that you’re not buying too high.
Besides, DCA helps establish a regular investing discipline, which is good for those who want to grow their portfolios over time, regardless of the price of the asset they buy with this strategy.
When it comes to precious metals, the DCA strategy works as a tool to build your gold savings and wealth over a long time.
Considering that gold prices have historically been going up over the long term, but tend to fluctuate over the short term, DCA can help smooth out these fluctuations and take advantage of potential long term price gains.
So, if you’ve been thinking of starting gold savings, now may be the right time!🙂
