Dollar Cost Averaging; So Much Simpler Than It Sounds

Dollar cost averaging is an investment strategy where regular investments are made into your account or portfolio. Dollar cost averaging can be an ideal plan for the young online investor. It lowers risk, cost and doesn’t require big lump sums to be invested all at once. Despite the fact, that, generally speaking young online investors can afford a bit more risk than those closer to retirement, many of us just don’t want to put the work into it. That’s okay!

1) Determine exactly how much you can afford to invest on a weekly or monthly basis. Sharebuilder.com has an automatic investment plan exactly for this purpose. By developing a dollar cost averaging investment plan and setting that plan in motion through a free, basic account at Sharebuilder.com you’ll only pay $4 each time you invest! Real time trades via Sharebuilder.com can cost you up to $15.95 per trade! You can see how much money you’ll save.

I know that a few posts ago I talked about how I made the switch from Sharebuilder.com to Scottrade.com. That’s because I am an active trader. Sharebuilder.com is an excellent site for online investors, but it’s a special value to those wanting to implement a dollar cost averaging strategy.

2) Dollar cost averaging is a long term investment plan; it’s not a good way to make a quick buck. It is a good way to secure your financial future. That leads us to the type of investments you want to make. Like all good investment strategies, a key goal is to diversify your portfolio. You do not want to pour $50 a week into one stock for years, goodness only knows the risk you’d face. However, with $50 a week it’d take some pretty rigid and careful planning to create a diversified stock portfolio on your own.

What are your other options?

Index funds; like the S&P 500, the Wilshire 5000, or the FTSE 100. If we take a closer look at the S&P 500, you’ll see large capitol corporations and a ready made diversified investment. The idea behind an index fund is that you are investing your money along with others; this enables you to take part in a number of investments that would not be plausible for most individual investors, must less the young, newbie, online investor.


Mutual funds; you must purchase shares straight from the fund itself. If you own a mutual fund you can sell your share back to the fund. Some of the nice things about mutual funds are the professional management, their affordability, they are redeemable and like index funds are diversified. However, there is a down side to mutual funds such as the cost, lack of control and price uncertainty. Before you consider involving yourself in a mutual fund, use the mutual fund cost calculator to compare costs.

If you’re new to the world of investing, but dying to get in on the action, dollar cost averaging is a great place for you to start. The most important thing is to have a plan in place before you make your first move. That means, you have to either do the research or pay someone else to. Either way, knowing what you’re putting your money into today is an investment you’ll be glad you made in the future. Get it? investment- now wasn't that a witty pun?