The Power of Dollar Cost Averaging: A Reddit User’s Bitcoin Investment Experiment

Introduction

In a compelling tale of persistence and financial prudence, a Reddit user going by the handle u/Gorillahair2000 embarked on a unique investment experiment to determine the potential rewards of consistently investing small amounts into Bitcoin. This experiment aimed to showcase the power of dollar cost averaging and its ability to generate significant returns, even with a modest budget.

The Experiment

For a full year, the Redditor allocated just $5 per day into Bitcoin, diligently recording their progress. At the end of the 365-day period, the Redditor had accumulated a total of 0.075 Bitcoin. The average purchase price throughout the year was $24,108.58, while the current price of Bitcoin stood at $34,158.20.

Financial Results

Considering the total expenditure of $1,825.00 over the year, the current value of the investment amounted to $2,585.75, resulting in a net change of +41.68%. This demonstrates the potential for significant growth even with small, consistent investments.

Accounting for Fees

The Redditor took into account the 0.5-1.0% spread on each purchase, ensuring that the gains remained after adjusting for fees. The user utilized Strike, a popular Bitcoin Lightning wallet, for their purchases and then transferred the Bitcoin to a hardware wallet following industry best practices.

Transforming Daily Expenses

By transforming the daily expense equivalent to a Starbucks coffee into a Bitcoin investment, the Redditor was able to generate a current value of $2,500, resulting in a $750 gain. This serves as a testament to the potential returns that can be achieved, even with a modest budget.

The Power of Dollar Cost Averaging

This experiment highlights the power of dollar-cost averaging as an investment strategy. By consistently purchasing assets at fixed intervals, regardless of their price, investors can mitigate the effects of market volatility. The Redditor's experience demonstrates the effectiveness of this strategy in generating significant returns over time.

Bitcoin's Advantages

Furthermore, this experiment showcases Bitcoin's main advantages as a sound form of money. Unlike traditional savings vehicles tied to inflationary fiat currencies, Bitcoin does not depreciate over time. It offers investors the potential for long-term value appreciation and serves as a hedge against inflation.

Conclusion

The Reddit user's Bitcoin investment experiment serves as a testament to the potential rewards of consistently investing small amounts and practicing dollar cost averaging. Even with a modest budget, investors can generate significant returns over time. This experiment underscores the advantages of Bitcoin as a sound form of money and highlights the power of dollar-cost averaging in mitigating market volatility.

Frequently Asked Questions

How to open a Precious Metal IRA

First, you must decide if your Individual Retirement Account (IRA) is what you want. To open the account, complete Form 8606. For you to determine the type and eligibility for which IRA, you need Form 5204. This form should not be completed more than 60 days after the account is opened. You can then start investing once you have this completed. You can also choose to pay your salary directly by making a payroll deduction.

For a Roth IRA you will need to complete Form 8903. Otherwise, the process will look identical to an existing IRA.

To be eligible to have a precious metals IRA you must meet certain criteria. The IRS stipulates that you must have earned income and be at least 18-years old. For any tax year, your earnings must not exceed $110,000 ($220,000 for married filing jointly). And, you have to make contributions regularly. These rules are applicable whether you contribute through your employer or directly from the paychecks.

You can invest in precious metals IRAs to buy gold, palladium and platinum. You can only purchase bullion in physical form. This means you can’t trade shares of stock and bonds.

To invest directly in precious metals companies, you can also use precious metals IRA. This option can be provided by some IRA companies.

However, investing in precious metals via an IRA has two serious drawbacks. First, they’re not as liquid as stocks or bonds. This makes it harder to sell them when needed. Second, they are not able to generate dividends as stocks and bonds. Therefore, you will lose money over time and not gain it.

What tax is gold subject in an IRA

The fair market value at the time of sale is what determines how much tax you pay on gold sales. Gold is not subject to tax when it’s purchased. It isn’t considered income. If you sell it after the purchase, you will get a tax-deductible gain if you increase the price.

Gold can be used as collateral for loans. Lenders seek to get the best return when you borrow against your assets. For gold, this means selling it. The lender might not do this. They may hold on to it. They might decide to sell it. You lose potential profits in either case.

So to avoid losing money, you should only lend against your gold if you plan to use it as collateral. If you don’t plan to use it as collateral, it is better to let it be.

Should You Open a Precious Metal IRA?

Before opening an IRA, it is important to understand that precious metals aren’t covered by insurance. There is no way to recover money that you have invested in precious metals. This includes all investments that are lost to theft, fire, flood, or other causes.

Investing in physical gold and silver coins is the best way to protect yourself from this type of loss. These items can be lost because they have real value and have been around for thousands years. If you were to sell them today, you would likely receive more than what you paid for them when they were first minted.

If you decide to open an IRA account, choose a reputable company that offers competitive rates and products. Consider using a third-party custody company to keep your assets safe and allow you to access them at any time.

Remember that you will not see any returns unless you are retired if you open an Account. Don’t forget the future!

What is the best precious metal to invest in?

The answer to this question depends on how much risk you are willing to take and what type of return you want. Gold has been traditionally considered a haven investment, but it’s not always the most profitable choice. If you are looking for quick profits, gold might not be the right investment. If patience and time are your priorities, silver is the best investment.

If you’re not looking to make quick money, gold is probably your best choice. If you want to invest in long-term, steady returns, silver is a better choice.

Statistics

  • Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. (aarp.org)
  • This is a 15% margin that has shown no stable direction of growth but fluctuates seemingly at random. (smartasset.com)
  • (Basically, if your GDP grows by 2%, you need miners to dig 2% more gold out of the ground every year to keep prices steady.) (smartasset.com)
  • Instead, the economy improved, stocks rebounded, and gold plunged, losing 28 percent of its value in 2013. (aarp.org)
  • The price of gold jumped 131 percent from late 2007 to September 2011, when it hit a high of $1,921 an ounce, according to the World Gold Council. (aarp.org)

External Links

cftc.gov

finance.yahoo.com

wsj.com

forbes.com

How To

How to Hold Physical Gold in an IRA

The easiest way to invest is to buy shares in companies that make gold. But, this approach comes with risks. These companies may not survive the next few years. If they survive, there’s still the risk of losing money due to fluctuations in the price of gold.

You can also buy gold directly. You will need to either open an online or bank account or simply buy gold from a reliable seller. This option has many advantages, including the ease of access (you don’t have to deal with stock markets) and the ability of making purchases at low prices. It is easier to view how much gold has been stored. The receipt will show exactly what you paid. You’ll also know if taxes were not paid. You are also less likely to be robbed than investing in stocks.

There are also some drawbacks. You won’t get the bank’s interest rates or investment money. You won’t have the ability to diversify your holdings; you will be stuck with what you purchased. The taxman might also ask you questions about where your gold is located.

BullionVault.com has more information about how to buy gold in an IRA.

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By: Reed Macdonald
Title: The Power of Dollar Cost Averaging: A Reddit User’s Bitcoin Investment Experiment
Sourced From: bitcoinmagazine.com/markets/redditor-investing-5-into-bitcoin-every-day-for-1-year
Published Date: Mon, 30 Oct 2023 14:00:48 GMT

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