Cost Average Effect Calculator
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What is the cost average effect?
The average effect can reduce this risk of a high possible loss. Roughly summarized, the cost average effect is about making regular purchases regardless of the price, instead of a one-time purchase. Thereby the average price decreases/increases and on the one hand the loss but also on the other hand the potential profit is reduced.
How does the cost average effect work with an example?
Suppose I want to buy Coin X at the price of 10 EUR per coin and I have 200 EUR budget. Now I have 2 possibilities to do this:
- I buy myself with the 200 EUR budget 20 pieces of the Coin X
- I think about a desired term of e.g. 5 months and buy 40 EUR of this Coin X every month:
- Month: price is 10 EUR – 4 pieces.
- Month: price is 5 EUR – 8 pieces.
- Month: price is 12 EUR – 3.33 pieces.
- Month: price is 16 EUR – 2.5 pieces.
- Month: price is 8 EUR – 5 pieces.
With variant 2, I thus received a total of 22,833 pieces, which would correspond to an average price of 8.76 EUR.
Of course, the average price could also be higher than the initial purchase price. Nevertheless, it should be borne in mind that a drop in price under variant 2 means a lower loss and thus a lower risk.
Is the cost average effect worth it?
In general, it is recommended to use the cost average effect. This quickly reduces the risk of losing a lot of money. However, in addition to reducing the risk and the potential loss, the potential profit is also reduced. In the long run, regular savings deposits definitely pay off.