advantages of dollar-cost averaging in crypto investing

Dollar-Cost Averaging Benefits in Crypto Investing

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Do you want to make investing in the crypto market easier and possibly lower your costs over time? Dollar-cost averaging (DCA) might be the strategy you need.

DCA means investing small, equal amounts in cryptocurrency regularly, not in big chunks. This way, you can increase your holdings and possibly reduce your costs when prices drop. It lets you invest at set times, whether the market is up or down. This approach helps remove emotions from investing in crypto, which is great for those investing for the long haul.

Key Takeaways

  • Dollar-cost averaging can help reduce the impact of market volatility on your crypto purchases.
  • DCA allows you to invest regularly, regardless of market direction, potentially lowering your average cost basis.
  • Long-term crypto investors can use DCA to manage risk and build wealth over time.
  • DCA can take the guesswork and emotions out of entering the volatile crypto market.
  • Cryptocurrency investments should be made with the understanding that the assets may increase in value over the long run.

What is Dollar-Cost Averaging (DCA)?

Dollar-Cost Averaging (DCA) is a way to invest money in cryptocurrency at set times, no matter the price. It aims to smooth out your buying costs by spreading them over time. This method helps you benefit from market highs and lows, potentially lowering your cost per unit of cryptocurrency.

Definition and Concept

The idea behind dollar-cost averaging is straightforward and effective. You invest a bit of money at regular times instead of all at once. This method lessens the risk from market changes. You buy more when prices are low and less when they’re high. Over time, this can lead to a lower average cost per unit, which might boost your returns.

This strategy is great for crypto investors because the market can be very unpredictable. Using DCA, you can stay steady and disciplined in building your portfolio, even with market ups and downs.

“Dollar-cost averaging is a simple yet powerful investment strategy that can help you weather market volatility and potentially improve your long-term returns.”

The main advantages of DCA in crypto investing are:

  • Mitigating the impact of market volatility
  • Promoting a consistent and disciplined investment approach
  • Reducing the emotional stress associated with market fluctuations
  • Potentially lowering the average cost per unit of the cryptocurrency

Learning about dollar-cost averaging can help investors make better choices. It can also increase their chances of success in the ever-changing crypto market.

How Dollar-Cost Averaging Works in Crypto

Dollar-cost averaging (DCA) is a popular way to invest in crypto. It means putting the same amount of money into a digital asset like Bitcoin or Ethereum at set times. This can be daily, weekly, or monthly. It helps investors smooth out the ups and downs of the market by buying more when prices are low and less when they’re high.

This strategy is great for beginners who don’t have the time or skill to guess the market. It takes the emotion out of investing, letting you invest regularly without worrying about the best time to do so. Crypto.com makes it easy to use DCA with features like Recurring Buy and Pre-Set DCA Bots.

Studies show DCA works well in bear markets, often beating other strategies. By investing regularly, even when prices drop, you can buy more at lower costs. This strategy is a smart way to build wealth over time.

Metric DCA Scenario 1 DCA Scenario 2
Investment Period 2 years 3 years
Total Investment $2,400 $3,600
Returns -37% +20%

The DCA strategy for crypto has its challenges, like the risk of cryptocurrency volatility. Before using DCA, investors should think about their risk level, time frame, and overall investment plan. By being disciplined, diversifying, and adjusting as needed, crypto investors can use DCA to grow their wealth over time.

“Dollar-cost averaging is proven and popular in both traditional financial markets and the crypto world, as it eliminates the impact of emotions in financial decisions and allows for active use of funds instead of waiting to time the market.”

Advantages of Dollar-Cost Averaging in Crypto Investing

Dollar-Cost Averaging (DCA) is great for new crypto investors or those wanting a simpler way to invest. It helps lessen the effect of market ups and downs by spreading your money over time. This is very useful in the crypto market, where prices change a lot.

One big plus of DCA is it helps you deal with crypto market ups and downs. By investing small amounts regularly, you can use price changes to your advantage. This can make your money grow more than trying to guess the best time to invest.

DCA also takes the stress out of investing by focusing on a steady, long-term plan. It helps you invest the same amount every time. This can make your investments more diverse and increase your returns over time. It’s a smart choice for crypto investors looking to use DCA’s benefits.

Dollar-Cost Averaging Benefits Details
Reduced market impact DCA spreads investments over time, averaging out purchase prices and minimizing the impact of market volatility.
Disciplined investing DCA removes the emotional aspect of investing, encouraging a long-term, consistent approach.
Diversification and compounding Regular, fixed investments can lead to greater diversification and compound returns over time.

The advantages of DCA for crypto investors show it’s a strong strategy for managing risks and building a stable portfolio in the unpredictable crypto market.

Implementing DCA in Your Crypto Strategy

Starting a successful Dollar-Cost Averaging (DCA) strategy for crypto investments has a few key steps. First, pick the cryptocurrencies you want to add to your DCA plan. Think about market size, past performance, usefulness, and the project’s future plans. Spreading your investments across different cryptocurrencies can lower your risk.

Choosing the Right Cryptocurrencies

For your DCA strategy, choose projects with solid basics and big potential. Good choices include Bitcoin (BTC), Ethereum (ETH), and other big cryptocurrencies. Diversifying helps lessen the effect of short-term market ups and downs on your investment.

Selecting an Investment Frequency and Amount

Decide how often and how much to invest in crypto. This depends on your money situation and goals. Many people choose to invest weekly or monthly with a set amount. This method averages your buy prices and reduces the effect of market swings.

Automating the Process with Tools and Platforms

Using crypto investment platforms or tools with automated DCA features can make things easier. These tools let you set up regular buys without needing to do it yourself. With these automated options, you can keep your crypto investments steady and stick to your DCA plan.

By following these steps, you can successfully implement a DCA strategy in your crypto investing. This can help reduce risk and possibly lead to better long-term gains.

Comparing DCA with Other Investment Strategies

When it comes to investing in cryptocurrency, Dollar-Cost Averaging (DCA) stands out. It’s compared to lump-sum investing and active trading. Lump-sum investing puts a big amount of money into a cryptocurrency right away. This can lead to big gains if the market goes up but also risks losing money if the timing is off.

Active trading means buying and selling cryptocurrencies often to make quick profits from short-term changes in the market. But, it takes a lot of time, effort, and knowledge to do well in this way.

DCA is a simpler, more laid-back strategy. It helps reduce the effects of market ups and downs. For those new to investing or who prefer less risk, DCA might be a better choice than lump-sum or active trading.

Investment Strategy Characteristics Potential Advantages Potential Disadvantages
Lump-sum Investing Investing a large amount of capital at once
  • Capitalizing on potential market upswings
  • Simplified investment process
  • Higher risk of poor market timing
  • Vulnerability to market volatility
Active Trading Frequently buying and selling cryptocurrencies to capitalize on short-term market fluctuations
  • Potential for higher returns
  • Ability to exploit market trends
  • Requires significant time, effort, and expertise
  • Higher risk of losses due to market volatility
Dollar-Cost Averaging (DCA) Regularly investing a fixed amount of money into a cryptocurrency at set intervals
  • Mitigates the impact of market volatility
  • Encourages long-term, consistent investing
  • Suitable for beginners and risk-averse investors
  • Potentially missing out on significant short-term profits
  • Incurring additional costs due to transaction fees

Choosing an investment strategy depends on your risk level, goals, and crypto market knowledge. DCA is good for those wanting a steady, long-term approach that lessens the effects of market ups and downs. Lump-sum and active trading might be for those ready to take bigger risks for possible higher gains.

Potential Drawbacks and Challenges

Dollar-Cost Averaging (DCA) can be a good way to invest in crypto, but it has its downsides. One big issue is inadequate diversification. This means not spreading out investments across many cryptocurrencies. This can lead to big losses if just one or two assets do poorly.

Another problem is insufficient research. Some investors jump into the market without really understanding the cryptocurrencies they’re buying. This can result in big losses if those investments don’t do well.

Also, lack of flexibility can be a big problem. Sticking too closely to a DCA plan might not work well in a changing market. Investors need to be ready to adjust their strategies as needed.

Finally, costs and fees from buying and selling can hurt your returns. These fees can add up and reduce the benefits of DCA.

Diversification Issues with DCA

One big risk of DCA is not spreading your investments widely enough. Some investors put all their eggs in one basket, thinking it will pay off. But this can lead to big losses if that one investment doesn’t do well.

Importance of Research in DCA

Not doing enough research is another challenge with DCA. Some investors follow the crowd or market trends without really understanding the cryptocurrencies they’re buying. This can lead to big losses if those investments don’t perform as expected.

Lack of Flexibility in DCA

Being too rigid with a DCA plan can be a problem. Markets change, and sticking to the same plan might not work. Investors should be open to adjusting their strategies based on new information and trends.

Overlooking Costs and Fees in DCA

Finally, don’t forget about the costs and fees from buying and selling. These fees can add up and reduce your returns from DCA.

Potential Drawback Description
Inadequate Diversification Focusing solely on one or two cryptocurrencies, exposing investors to higher risk if those assets underperform.
Insufficient Research Blindly following market hype or popular opinion, leading to losses if the chosen cryptocurrencies fail to meet expectations.
Lack of Flexibility Rigidly sticking to a predetermined investment schedule, which may not be the best approach during changing market conditions.
Overlooking Costs and Fees The transaction fees associated with frequent purchases can eat into the overall returns of the DCA strategy.

“Investing is not about beating others at their game. It’s about controlling yourself at your own game.” – Benjamin Graham

Real-life Examples and Case Studies

Let’s look at real-world examples of Dollar-Cost Averaging (DCA) in crypto. One investor started buying Bitcoin in 2018, when it was about $6,000. They put in the same amount every month. This way, they bought more Bitcoin when the price was low, lowering their average cost.

Later, Bitcoin hit all-time highs in 2021. This investor’s portfolio grew a lot, showing how DCA can be good for the long term.

Another investor used DCA to invest in different cryptocurrencies like Ethereum and Solana. They spread their money across these assets. Over time, they handled the market’s ups and downs well, making more money. This shows how DCA can help investors do well over the long haul.

Investor Investment Strategy Portfolio Value (2021)
Peter Perfect Perfectly Timed Market Entries $138,044
Ashley Action Immediate Investment $127,506
Matthew Monthly Dollar-Cost Averaging $124,248
Rosie Rotten Poor Market Timing $95,000
Larry Linger Never Invested $43,948

These examples show how DCA can be powerful in crypto investing. It helps investors deal with market ups and downs, grow their wealth over time, and might even beat other strategies.

“Dollar-cost averaging can help investors buy both when prices are low and high, smoothing out the average purchase price over time.”

Strategies for Maximizing DCA Returns

To boost the potential returns from Dollar-Cost Averaging (DCA) in crypto, investors can try advanced techniques. One idea is to change how much and when you invest based on the market. This means putting more in during lows and less during highs.

Another strategy is to spread your investments across various cryptocurrencies. This way, you can cover different risks and growth rates. By doing this, you can manage your crypto portfolio better.

Investors might also look into “DCA laddering.” This means dividing your investments into several parts with different timing. Or, you could mix DCA with other strategies like value averaging or lump-sum investing. This can make your crypto investment plan more flexible and effective.

Using these advanced DCA methods, investors can aim to improve their returns and better handle the crypto market’s ups and downs.

“Dollar-cost averaging (DCA) strategy aims to reduce impact of volatility on financial assets like stocks, ETFs, and mutual funds by investing a consistent amount at regular intervals.”

A 2012 Vanguard study found that the longer the investment time, the better lump-sum investing might be over DCA. But, DCA in crypto investing showed a 430% return by investing $100 weekly into Bitcoin over five years. This is more than the 113% return from investing all at once.

Looking at the SPDR S&P 500 ETF Trust (SPY) from 2016-2021, DCA didn’t beat lump sum investing in a rising market. But in a falling market from 2008-2012, DCA did better than lump sum.

During a sideways market from 2018 to 2020, DCA strategies beat lump sum investing in Bitcoin. This shows the value of DCA in stable markets.

By using these advanced DCA strategies, investors can aim to get better returns and manage the crypto market’s changes more effectively.

Optimizing DCA for Crypto Investments

DCA for Long-term Crypto Investors

For those with a long-term view on crypto, Dollar-Cost Averaging (DCA) is a smart move. It involves putting in a set amount regularly, helping to smooth out market ups and downs. This is perfect for investors who see the big picture and want to grow their crypto over time.

DCA keeps you from trying to guess the market’s next move, which can be risky. It’s a steady way to build wealth. Over time, DCA can lead to big gains for those who are patient and stick with it.

Metric Swan Bitcoin Coinbase Custody Trust
Trustpilot Rating 4.6/5 (1,134 reviews) 1.8/5 (9,323 reviews)
Google Play Store Rating 4.4/5 (607 reviews, 50,000+ downloads) 4.5/5 (836,000+ reviews, 10M+ downloads)

Dollar-cost averaging takes the guesswork out of investing. Trying to time the market can lead to big losses, as seen in a 45-day period where returns flipped from 127% to -84.6%. This method helps manage risks and emotions, ensuring a stable investment.

“Dollar-cost averaging adds flexibility to portfolios by preventing over-allocation to a single asset.”

Using DCA for long-term crypto investing offers many benefits. It helps build a strong, diverse crypto portfolio. This strategy is great for those who want to ride out market highs and lows.

DCA vs. Other Crypto Investment Approaches

Investing in cryptocurrencies offers different strategies like lump-sum investing and active trading. Lump-sum investing puts a big amount of money into a cryptocurrency at once. This can lead to big gains if the market goes up but can also result in losses if the timing is off.

Active trading means buying and selling cryptocurrencies often to make money from short-term changes in the market. This method needs a lot of time, effort, and knowledge to do well. DCA, on the other hand, is a simpler, more disciplined way to invest. It aims to reduce the effects of market ups and downs and encourages steady, long-term investing.

For new crypto investors or those who prefer less risk, DCA might be a better choice than lump-sum investing or active trading. By investing a set amount regularly, DCA can lower the average cost per unit. This approach helps manage the market’s highs and lows more evenly.

  • DCA involves adding to an investment gradually, over set periods like monthly or quarterly.
  • An example shows investing $1,000 monthly for a year at different prices, ending with an average cost of $9.49 per unit.
  • Investing $12,000 all at once at $10 per unit got 1,200 units.
  • This lump sum method can grow faster because it invests fully right away, benefiting from compounding.
  • DCA spreads investments over various prices, reducing the risk of entering the market at a bad time, which lowers the average cost.
  • Neither DCA nor lump sum protects against market drops, so investors should regularly check their investments.

The choice between DCA, lump-sum investing, or active trading depends on your investment goals, how much risk you can handle, and your financial situation. Knowing the pros and cons of each strategy helps investors make choices that fit their long-term crypto investment plans.

Psychological Benefits of DCA

Dollar-Cost Averaging (DCA) offers more than just financial benefits for crypto investors. It helps reduce the stress and anxiety that come with investing in crypto. By not needing to time the market, DCA makes investing less stressful.

This method stops investors from making poor choices due to fear, greed, or overconfidence. It also gives a sense of control and stability, even when the market is unstable.

Using DCA, crypto investors can manage their emotions better and avoid making quick, emotional decisions. This can help them stick to their goals and achieve success in the long run. The benefits of DCA in managing emotions and promoting a systematic approach are key to success in crypto.

The Benefits of a Systematic Approach in Crypto Investing

  • Reduced emotional stress and anxiety from market timing decisions
  • Avoidance of common behavioral biases like fear, greed, and overconfidence
  • Increased sense of control and stability, especially during volatile market conditions
  • Improved ability to stay disciplined and focused on long-term investment goals

By using DCA, investors can make their crypto investing better and increase their chances of reaching their financial goals.

“DCA’s disciplined, set-and-forget nature can provide a sense of control and stability for investors, particularly during periods of high market volatility.”

Psychological Advantage Description
Emotional Management DCA helps investors avoid the emotional rollercoaster of crypto markets, reducing stress and anxiety.
Behavioral Bias Mitigation The systematic nature of DCA can prevent investors from making impulsive decisions driven by fear, greed, or overconfidence.
Discipline and Control DCA provides a sense of control and stability, allowing investors to stay focused on their long-term goals.

DCA for Portfolio Rebalancing

Dollar-Cost Averaging (DCA) is great for crypto investors who want to adjust their portfolios over time. When crypto prices change, an investor’s mix of assets might get out of balance. DCA helps by making regular investments to slowly change the mix and keep it diverse.

For instance, an investor might put some DCA money into coins that are doing poorly. This lets them slowly get more into these coins and fix their portfolio balance. This way, they stay disciplined, manage risk, and keep their investments in line with their goals.

Studies show that DCA and perfect timing don’t make much difference in the long run. But, spreading investments across many assets is key. It reduces the risk of big losses if one asset drops. Thematics by SwissBorg makes it easy to diversify by investing in a mix of tokens with one click. It also lets you adjust your investments based on market trends and rebalances automatically to keep your desired mix.

Dollar Cost Averaging has been shown to work well over time in the crypto market. For example, starting with $1,000 and using DCA, a portfolio could grow to $3,800 in a year and $16,500 in five years. This includes big gains in Bitcoin (BTC) and Ethereum (ETH).

Asset 1 Year DCA Gains 5 Year DCA Gains
Bitcoin (BTC) $1,650 $9,650
Ethereum (ETH) $1,450 $6,000

Using DCA in their strategy, investors can balance their crypto portfolios, keep it diverse, and aim for long-term gains. This is even when the market is volatile.

DCA in Different Market Conditions

The Dollar-Cost Averaging (DCA) strategy is great for crypto investors in any market. In crypto bull markets, where prices go up, DCA lets investors buy more at lower prices. This can help them make the most of the market’s rise.

In crypto bear markets, with falling prices, DCA is even more useful. It lets investors buy more crypto at lower prices. This can lower their average cost over time.

Even in highly volatile crypto markets, DCA helps investors manage risks. It allows them to invest regularly, no matter the market’s ups and downs. This way, they can grow their portfolio and increase their returns over time.

Market Condition DCA Strategy Potential Benefits
Crypto Bull Market Consistent investment at regular intervals Capture upside potential, build position over time
Crypto Bear Market Continued investment at lower prices Acquire more units, lower average cost basis
Volatile Crypto Market Disciplined, long-term approach Smooth out the impact of price fluctuations

Using DCA in various markets helps crypto investors deal with the digital asset space’s volatility. It can help them reach their financial goals over time.

“Dollar-cost averaging is a simple but powerful investment strategy that can help investors weather the ups and downs of the crypto market.”

Integrating DCA with Other Investment Strategies

Dollar-Cost Averaging (DCA) is a strong investment strategy by itself. But, it can also work well with other methods for a better crypto portfolio plan. Smart investors mix DCA with other strategies to get the most benefits and reduce risks.

For example, an investor might put some money into DCA for steady growth over time. They might also use lump-sum investments or active trading for quick gains. Or, they could try “DCA laddering,” spreading their DCA investments across different times to match market changes.

By using DCA with other strategies like value averaging or rebalancing, crypto investors can boost their portfolio’s performance and risk management. This mix lets investors enjoy DCA‘s benefits while adding other techniques to improve their crypto investments.

Some benefits of mixing DCA with other strategies include:

  • Diversification: Mixing DCA with other methods like lump-sum investing or active trading spreads out the risk in an investor’s portfolio.
  • Adaptability: Using different strategies lets investors change their approach as market conditions and financial goals change.
  • Optimized Returns: Combining various investment techniques can help investors get the best long-term returns and handle market ups and downs better.

Putting DCA with other crypto investment strategies in a comprehensive portfolio plan helps investors deal with the unpredictable crypto market with more confidence and success.

“Diversification is the only free lunch in investing.” – Harry Markowitz, Nobel Laureate in Economics

Risks and Limitations of DCA

Dollar-Cost Averaging (DCA) is a good strategy for crypto investors, but it has risks and limitations. One issue is that it might lead to lower returns if the market goes up a lot and fast. This is because DCA averages out the cost over time.

Another problem is that DCA requires keeping money in cash, which can earn very little if interest rates are low. Investors might also face the tough challenge of seeing their investments lose value for a long time. This can be hard on the mind.

DCA doesn’t promise profits or protect against losses when the market falls. Investors must buy more during these times for the strategy to work. Knowing the risks associated with DCA in crypto and limitations of DCA strategy helps investors make better choices. It ensures DCA fits well with their investment plans.

Potential Drawbacks of DCA in Crypto Investing Potential Benefits of DCA in Crypto Investing
  • Lower returns compared to lump-sum investing in a sustained upward market
  • Holding funds in cash can generate low returns during periods of low interest rates
  • Psychological challenge of sitting through long periods of negative returns
  • No guarantee of profit or protection against losses in declining markets
  • Reduces the impact of market volatility by averaging purchase prices
  • Allows for consistent investment without the need to time the market
  • Can potentially lead to more tokens purchased when prices are low
  • Provides a disciplined, low-risk approach to crypto investing

In conclusion, DCA can be a useful strategy for managing risks associated with DCA in crypto and limitations of DCA strategy. But, investors should think about the potential drawbacks of DCA in crypto investing. Make sure it fits well with your overall investment plan.

Conclusion

Dollar-Cost Averaging (DCA) is a smart strategy for crypto investors with a long-term view or who prefer less risk. It involves putting in a set amount regularly. This method can lessen the effects of market ups and downs, ease the stress of investing, and possibly increase long-term gains through compound interest.

While DCA might not always beat investing all at once or active trading, it’s a disciplined way to invest. It’s great for new crypto investors or those who want a simpler, less risky way to manage their money.

By learning about DCA and its pros and cons, crypto investors can see if it fits their financial goals and risk level. They can use DCA as part of a broader investment plan to handle the changes in digital assets.

The key points on DCA for crypto investing and final thoughts on using this strategy can help investors. They can use this information to make a smart choice for their crypto investments.

Choosing DCA for crypto investing depends on your financial situation, goals, and how much risk you can handle. By weighing the good and bad of this method, investors can make a well-thought-out decision. This could lead to better long-term success in the changing crypto market.

FAQ

What is Dollar-Cost Averaging (DCA)?

Dollar-Cost Averaging (DCA) is a way to invest money into a cryptocurrency at set times, no matter the price. It aims to average out your costs and lessen the effect of price changes on your investment.

How does Dollar-Cost Averaging work in the context of cryptocurrency investing?

For crypto investing, DCA means picking a digital asset like Bitcoin or Ethereum. Then, you invest a set amount of money at regular times, like daily, weekly, or monthly. This method helps you buy more when prices are low and less when they’re high, averaging your entry points.

What are the advantages of using Dollar-Cost Averaging for crypto investments?

DCA has many benefits for crypto investors. It reduces the effect of market ups and downs, takes the emotional guesswork out of investing, and helps with diversification and growth over time.

How can I implement a successful Dollar-Cost Averaging strategy for my crypto investments?

To use DCA well, first pick the cryptocurrencies you want to invest in. Then, decide how often and how much you’ll invest. Use automated tools and platforms to make the process easier.

How does Dollar-Cost Averaging compare to other crypto investment strategies?

DCA is a passive, disciplined strategy that aims to lessen the impact of market changes. It’s good for beginners and those who prefer less risk. It differs from lump-sum investing and active trading.

What are the potential drawbacks and challenges of using Dollar-Cost Averaging in crypto investing?

DCA might not provide enough diversification, require thorough research, limit flexibility, and overlook transaction costs and fees.

Can you provide real-life examples and case studies of Dollar-Cost Averaging in the cryptocurrency market?

Yes, for example, an investor started DCAing into Bitcoin in 2018. Another investor used DCA to build a diverse crypto portfolio over time.

How can I maximize the returns from a Dollar-Cost Averaging strategy in the crypto market?

To boost DCA returns, adjust your investment amounts and timing based on market trends. Diversify your cryptocurrencies and combine DCA with other strategies.

How is Dollar-Cost Averaging particularly beneficial for long-term crypto investors?

For long-term investors, DCA is very useful. It helps reduce the impact of market volatility and builds a diverse portfolio. It also avoids the stress of trying to predict market trends.

What are the psychological benefits of using Dollar-Cost Averaging for crypto investments?

DCA offers psychological benefits by removing the need to time the market. It reduces emotional stress and anxiety, giving investors a sense of control and stability.

How can Dollar-Cost Averaging be used for rebalancing a crypto portfolio?

By investing regularly with DCA, you can adjust your portfolio and keep your desired diversification. This helps rebalance your crypto holdings over time.

How effective is Dollar-Cost Averaging in different crypto market conditions?

DCA works well in all market conditions, smoothing out price changes. It helps investors maintain a disciplined, long-term approach.

How can Dollar-Cost Averaging be integrated with other crypto investment strategies?

You can mix DCA with other strategies, like lump-sum investing or active trading. This creates a more comprehensive plan for managing your crypto investments.

What are the risks and limitations of using Dollar-Cost Averaging in crypto investing?

DCA might offer lower returns than lump-sum investing in rising markets. It can mean holding cash, which may miss out on gains. It also doesn’t protect against losses in falling markets.

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