What is Dollar Cost Averaging?

Dollar cost averaging is a term used to refer to the benefits of making small regular investments usually of the same size.

The advantage of this approach is that when the price is high, you will naturally by less stocks (or currency), but when it is low you will by more simply by the virtue that the price is higher and if you invest a fixed amount you can afford to buy more.

An example makes it clear, lets say for example you invest $100 per month

1. 1st month, the LEO price is $1, so you buy 100 LEO
2. 2nd month, the LEO price is $2 so you buy 50 LEO
3. 3rd month, the LEO price is down to $0.5 so you buy 200 LEO
4. 4th month, the LEO price is $1 again so you buy 100 LEO
5. 5th month, the price rises to $2.50, just before you purchase.

So the total investment is $400, with 450 LEO purchased. So the average price of purchase is $0.89 (400/250)

But the average price over the period was $1.125 (i.e. $4.5/4). So how come the average purchase price is lower than the average price over the period? Its because you buy more when the price is low, and less when its high. That means your returns are higher.

The total value at the end of the 5th month is 450*2.5 = $1,125 which is a $725 profit (using dollar cost averaging)

If we invested at the average price in the period, the total number of LEO would be $400/1.125 = $355.55 with a total value of $888.88
This is a profit of $488.88 much lower than the dollar cost average.

Is Authoring on LEO a form of dollar cost averaging?

Lets say your only investment is authoring, then how does the amount you earn each month vary with the LEO price? You might think that the LEO amount is fixed, but the value goes up and down with the price, if this was the case, then you wont be taking advantage of dollar cost averaging.

However higher LEO prices provides higher incentive for people to author, so arguably the same pool of rewards is stretched thinner. So my hypothesis is that, LEO prices increases total amount of authoring, this puts downward pressure on the amount of LEO rewarded, but also increases the reward dollar value per LEO rewarded. So overall the dollar value of the rewards might not be impacted by the LEO price?

Its an interesting theory, I might do some research and analysis one day to test if this is true. However if it is true, by authoring and using the rewards as your regular investment, you will be taking advantage of dollar cost averaging.

So what does all this mean?

This means that regular authoring and reinvestment into LEO is a great thing to do to maximize your returns, so what are you waiting for lets keeping writing fantastic articles to generate interest in the platform