Investment strategy; I’m a lump

What is lump sum?

Lump sum is an investment method that implies that all available money is invested in the market at once, instead of being distributed gradually over time (as with dollar-cost-averaging (DCA)). This can be beneficial for investors who want to take advantage of long-term market growth and avoid the costs and risks associated with frequent trading, and believe that the market is immediately undervalued. However, lump sum investment also carries greater risk, given that the money is not distributed over a longer period of time. With the dollar cost average strategy, the market decline can be used for increased investment, which brings higher returns in the long run, if we use the lump sum strategy the market crash will negatively affect us, because we have already invested all the money. This means that choosing between a dollar cost average and a lump sum comes down to your personal opinion of the current state of the market and risk profile. In this blog we will try to bring you closer to the lump sum strategy so that you can make a decision about which investment method suits you better.

Source: cointelegraph

How does lump sum work?

Suppose you have $50,000 that you want to invest in cryptocurrencies. Instead of buying gradually during the year, decide to invest all your money at once in January. Make a project budget in which you specify how much money you will spend on each cryptocurrency and how much you will buy.

Like what:

The total cost of your project is $100,000, which is your lump sum amount. At the end of the year, you sell all cryptocurrencies and count your profitor loss. Let’s assume that cryptocurrency prices have changed like this:

Your total revenue from cryptocurrency sales is: (0.29 x 50,000) + (4.36 x 3,000) + (7,575.76 x 2) + (32.15 x 400) + (47,619.05 x 0.3) = $77,569. This means that your profit is the difference between income and expense: $77,569–$50,000= $17,569. You have successfully earned 55% on your investment in a year. This is one example of a lump sum investment, of course investing can end in a loss, and as we noted earlier it is much riskier than a dollar cost average strategy.

Source: cointelegraph

Advantages of lump sum strategy

Simplicity: Lump sum investing is easy to calculate and track. You don’t have to worry about how much money you’ll invest each month or how you’ll distribute your money among the different investment options. You just choose the fixed amount you want to invest and buy shares or other securities at the current market price.

Time savings: Lump sum investing saves you the time you would normally spend researching markets, analyzing trends, tracking prices, and making buying and selling decisions. Instead, you can focus on your long-term goals and strategies.

Taking advantage of historical market growth: Lump sum investment allows you to take advantage of the market’s historic growth, which on average has been positive over long periods of time. If you invest all the money at once, you have a greater chance of getting a higher return than what you would get if you invested gradually over time. This is because you will have more time for your investment to grow and accumulate interest.

Cost and risk reduction: Lump sum investing helps you reduce the costs and risks associated with frequent trading. You don’t have to pay fees, commissions, or taxes every time you buy or sell stocks or other securities. Also, you don’t have to worry about missing out on an opportunity to buy or sell at a good price due to market changes.

These are just some of the advantages of lump sum investments. However, this strategy also has some drawbacks and risks that need to be considered before you decide on it.

Source: cointelegraph

Weaknesses of lump sum strategy

Non-adaptability: Lump sum investment is non-adaptable to market changes. If you invest all the money at once, you can’t withdraw it or redirect it to other investment options without loss or additional costs. Also, you can’t take advantage of favorable buying or selling opportunities that may arise over time.

Higher risk of losing: A Lump sum investment is riskier than a gradual investment (DCA) because it depends on when you invest money. If you invest money at an adverse moment, when the market is high, you can lose some or all of your money if the market falls after the investment. This is called timing risk and can be difficult to predict.

Psychological stress: Lump sum investing can cause more psychological stress than a gradual investment because it requires you to make one big decision about your money and face the consequences. This can lead to emotional reactions, such as fear, panic, greed or remorse, that can affect your mood, which definitely tells us that this strategy is not for everyone.

These are some of the disadvantages and risks of lump sum investment, it is up to you to decide whether you like this strategy, or whether it is still too risky for you.

Source: cointelegraph

Conclusion

Lump sum strategy is a way of investing that implies that all available money is invested in the market at once, rather than being distributed gradually over time. This strategy has its advantages and disadvantages, which should be carefully considered before deciding on it. The benefits include simplicity, time savings, taking advantage of the market’s historic growth, and reducing costs and risks. Disadvantages include inadaptability, a higher risk of loss, and psychological stress. This strategy may be suitable for those who have sufficient knowledge, experience and confidence in their decisions, as well as those who have a long-term vision and goals. On the other hand, this strategy is inappropriate for those who are inexperienced, insecure or unstable, as well as for those seeking flexibility and adaptability. If you want to use a lump sum strategy for your investment, you need to be prepared to accept the possible consequences and responsibilities it carries. Also, you need to be aware that this strategy is not the only option and that there are other investment methods that you can explore and exploit. We hope you enjoyed this blog, we would love for you to share your opinion on this strategy with us on our social networks (Twitter, Instagram).