2 Quick Points to Simplify Dollar-Cost Averaging

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Investing can be a challenging endeavor no matter where you are in life. That is why there is a strategy that helps simplify it known as dollar-cost averaging. Dollar-cost averaging is an investment strategy that involves investing the same amount of money into a specific security at regular intervals, regardless of price or market conditions. The practice of dollar-cost averaging eliminates the additional effort needed to time the market for the best purchase price. The following two points will help to simplify dollar-cost averaging further:

1. Dollar-Cost Averaging Can Be Automated

2. Dollar-Cost Averaging Has a Long-Term Focus

1. Dollar-Cost Averaging Can Be Automated

Since dollar-cost averaging involves investing the same amount of money into a specific security at regular intervals, it can be automated. Multiple brokerages such as Vanguard, Charles Schwab, and M1 Finance support automatically investing a specific amount of money into a specific set of securities at regular intervals, such as bi-weekly or monthly. An example of dollar-cost averaging you are likely familiar with without realizing it is your 401(k) plan, where you automatically invest a portion of your paycheck into mutual or index funds.

2. Dollar-Cost Averaging Has a Long-Term Focus

You are not worrying about short-term market conditions when it comes to dollar-cost averaging. You are continuously investing a specific amount of money over the long term, allowing you to be a consistent participant in the growth of equities. The average bear market is approximately ten months, while the average bull market is approximately three years. In focusing on the long-term by dollar-cost averaging, your money will compound for you.

Dollar-cost averaging is one of the simplest forms of investing. It is not perfect, and it is also not risk-free, just like any form of investing. Still, it is a good way to become a market participant without putting your hard-earned money in unnecessary risk. Let me know in the comments what you think of dollar-cost averaging.