With the rise of various kinds of cryptocurrencies and tokens, it’s becoming increasingly difficult to identify the next Bitcoin, one that’s going to transform or destroy(pun intended) our future world and make us all filthy rich as a Lannister. The year on year growth and the never before seen Mt. Everest high return on investment of cryptos has everyone baffled and equally worried. Worried not because it’s going to be the end of the world but worried that I might miss out on this once in a lifetime opportunity to make millions out my spare £100 cash. As a result, we have seen a mad rush of individuals speculating and buying cryptos in a strikingly similar event to The California Gold Rush of 1849. To put things into perspective, The California Gold Rush was the largest mass migration in American history since it brought about 300,000 people to California. The gold rush resulted in the hasty development of California: many roads, churches, schools and towns were built to accommodate the gold-diggers. Fast forward to the year 2018 and the price of gold has risen by 6422.25% since 1849. So, was gold a good investment? Of course, unless you live under a rock and don't really care about your well being & wealth.
Such has been the growth of cryptos due to price speculation from wannabe millionaires that we are witnessing humongous price bubbles forming and popping as and when they wish. So, the individuals who are unlucky enough to buy just before the bubble pops end up piling on massive losses whilst the individuals who luckily bought it at the bottom suddenly start feeling like Kings or Queens with their astronomical investment growth. Oh. And let's not forget the people who unwittingly jumped in the mid-period where their investment just seems to be doing nothing but in a stagnant state. As such, investment becomes too tiring, risky and too bothersome for daily wage earners like you and me and we eventually end up withdrawing from any form of investment and kill off any dreams of millions. In this article, we will see how we can apply a systematic investment plan to our crypto investment and reduce risk as well as worries.
Systematic Investment Plan or (SIP) is an investment approach usually offered by mutual funds to investors, allowing them to invest small amounts periodically instead of lump sums. The frequency of investment is usually weekly, monthly or quarterly. A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.
How does it work?
Your money is auto-debited from your bank and invested in your selected investments assets. You are allocated a certain number of units based on the current market rate for the day. Thus everytime your money is invested on the recurring basis, you are purchasing additional units of the applied scheme at the current market rate. Since, units are bought at different rates at regular intervals, the investor benefits from Dollar-Cost Averaging and the Power of Compounding.
Dollar-Cost Averaging
As stated on Investopedia, Dollar-Cost Averaging claims to free the investors from speculating in volatile markets. As the investor is getting more units when the price is low and fewer units when the price is high, in the long run, the average cost per unit is supposed to be lower.
Power of Compounding
"Compound interest occurs when the interest that accrues to an amount of money, in turn, accrues interest itself." With such potential for astronomical growth, it's no wonder Albert Einstein called the power of compound interest the most powerful force in the universe.
Example
If you started investing £100 a month on your 40th birthday, in 20 years time you would have put aside £24,000. If that investment grew by an average of 7% a year, it would be worth £52,092 approx. when you reach 60.
However, if you started investing 10 years earlier, your £100 each month would add up to £36,000 over 30 years. Assuming the same average annual growth of 7%, you would have £121,997 on your 60th birthday – more than double the amount you would have received if you had started ten years later!
Benefits of Systematic Investment Plan
SIP approach offers a disciplined investment plan, long-term gains due to dollar-cost averaging and compound interest, flexibility as there is no fixed term lock in’s, investors can discontinue the plan at any time. One can also increase/ decrease the amount being invested, convenience as all of this can automate through a service provider.
SIP’s have proven to be an ideal investment strategy for retail investors and can be easily applied to cryptocurrency and token investments either through a service provider like Hexorr (hexorr.com) or manually.
References
https://en.wikipedia.org/wiki/Systematic_Investment_Planhttps://timesofindia.indiatimes.com/articles/Determine-Your-Investment-Objectives-and-UnderstandingYour-Risk-Profile/articleshowhsbc/22936740.cmshttps://www.investopedia.com/terms/d/dollarcostaveraging.aspWhat do you think about this? Everyone's opinions will be highly appreciated here. Thanks.
