How to Dollar-Cost Average your Portfolio

Beginner’s Guide / 10.12.2019

Unless they feel exceptionally adventurous, not too many investors like to place large sums of money into the market at once. Most of them prefer a steady process called Dollar-Cost Average (DCA), which reduces risk and limits liability.

If you are looking for these advantages, you will want to use a powerful tool that does half of the work for you. In this regard, you cannot go wrong with Shrimpy – one of the top portfolio management applications on the market.

More on Shrimpy later! Now, we should take a closer look at how DCA works, and how you can use it to improve your portfolio.

How Dollar-Cost Average Works

Dollar-Cost Averaging is a nifty strategy for injecting capital into your portfolio. The best way to do it is to designate the funds across the investment portfolio per preset targets. There are three necessary steps to complete this process:

  • Deposit Recognition
  • Designating the Capital
  • Trade Execution

Let’s take them apart to get a better understanding of the process:

  1. Deposit Recognition

The great thing about using Shrimpy is that Dollar-Cost Averaging comes into effect only when you make a deposit. As soon as you inject capital in your portfolio a DCA will read its value and advance it for the next step in the process.

This application performs regular checks for new deposits every 15 minutes. If the results return positive the Dollar-Cost Averaging execution starts automatically.

  1. Designating the Capital

During this step, only the funds that you inject in your portfolio will be subject to further designation. Once the deposit has been recognized, the application proceeds to allocate it to the preset targets.

You can manually calculate where the capital should be designated in such a way that it reaches each of the assets that you have previously chosen. The application can divide the funds in such a way that they reach the preset targets even if the deposited capital cannot fulfill the initial designations.

  1. Trade Execution

Once all the calculations are complete, the designated assets receive the funds that constitute your capital injection. If failed trades lead to leftover funds, they will be left in the deposited asset.

Portfolio Simulation

The best way to understand how Shrimpy can Dollar-Cost Average your portfolio is through simulation. Here is an example of how this application works!

Let’s suppose that you have a portfolio of $100. In it, you have 5 different assets, each with a value of $20. As a result, your portfolio has 10 preset targets, each consisting of 20% of the portfolio’s overall value.

Now, let’s imagine that the assets in your portfolio and their preset targets are the following:

Assets

Preset targets
Bitcoin30%
Ethereum25%
XRP20%
Litecoin15%
Cardano10%

If you inject your portfolio with $100 worth of capital, the application will Dollar-Cost Average the funds according to your pre-designated allocations. As a result, most of the funds will go to your Bitcoin assets to reach the 30% target. The next share of the funds will fulfill the target for Ethereum. The third one will go to XRP, and so on.

The goal is to distribute the funds in such a way that the portfolio meets as much as possible its preset targets after the allocation process ends.

The Benefits of Dollar-Cost Averaging Your Portfolio

By using Shrimpy, you ensure that every capital injection gets the proper distribution to the assets in your portfolio, and per your preset allocation targets.

This application does not rebalance the funds in your portfolio. It only works with the new fund injections, and which it tries to distribute across the assets to get as close as possible to the targets that you set.

Some of the other benefits of using Shrimpy to DCA your portfolio include:

Lower Trade Frequency

This app enables you to maintain a clean trading strategy. Through DCA you can reduce the number of rebalancing events and taxes that occur with every capital injection.

Trade Fee Reduction

If you use DCA frequently to manage your portfolio, you may substitute the usual rebalance events with DCA events. This way, you can diminish the number of fees that you pay during a rebalance. You can also reduce administration costs for each asset and improve your long-term portfolio strategy.

Automatic Funds Allocation

When you use automatic DCA for your portfolio, you only need to set it up once to ensure long-term stability. This process will save you the time and energy that you would normally spend to manually allocate the funds every time you make a capital injection.

Final Words on Shrimpy

Shrimpy is a market leader in the field of Dollar-Cost Averaging strategies. It is user-friendly and simple to operate even by less experienced investors.

Users may employ Shrimpy to configure a portfolio and apply a passive rebalancing strategy that is automatic and stress-free.

The Shrimpy’s Developer Trading API lets you manage as many users as you like. It enables you to access all the historical market data, trading strategies and real-time WebSockets in a perfectly integrated framework that functions across every major exchange.

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A creative writer in the field of content writing for the past 7 years. Iulian is passionate about his work and his interest in areas such as technology, travel, sports, literature and gastronomy have aided him to the research quality in articles that reflect these themes. Recently, he discovered the Bitcoin and the blockchain technology and he’s a big fan now.