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The Power of Dollar Cost Averaging

What is dollar cost averaging and why is it such a popular way to invest?

By Austin Payne


June 27, 2023

Dollar cost averaging can be loosely defined as investing equal amounts of money over a period of time, as opposed to just plopping a lump sum of money into the market at once. It’s quite likely the single most popular method of investing out there, and a reliable way to progressively invest your way towards retirement, or any other long-term financial goals you may have. 

It’s often assumed to be the gold standard of investing, so let’s take a closer look and share some of the benefits of this renowned practice.

What DCA investing affords you

The ideology behind it: The term dollar cost averaging was first coined by Benjamin Graham in his book titled “The Intelligent Investor” and has been around for over 70 years now, but its popularity has increased consistently over the last few years.

Mythbusting: We often assume that investing ASAP will be optimal given the power of compounding. However, empirical data shows that there was no difference in DCA vs. lump sum investing when looking at 20-year rolling periods back to the 1920s in 66 out of 76 rolling periods.

Objective and mechanic: When you invest in a DCA fashion, no thinking is needed. You simply determine a set amount based on your net worth, income, and cash, and deposit it routinely into the investment(s) of your choice. Or even better, just set up auto-transfers. It reduces the time spent trying to strategize and find the best time, place, or amount to invest, creating an overall more serene experience.

Mitigating the downside: If you had $100,000 to invest and you’d put it all into a total stock market index fund like $VTI on December 31st, 2021, you’d now have just about $91,000 left, so that sucks…But, if you had instead decided to invest $5,000 a month, your losses would be much less precipitous, because a gradual investment reduces the probability that you would invest at a market high. This can have real benefits, especially for those who may need those funds or are looking to retire soon. No one wants to lose 20% of their nest egg 6 months prior to retirement.

Practicality & affordability: For most of us, it’s just not practical to dump a lump sum of money or paycheck into the market at once — life costs money too. Dollar-cost averaging affords you the ability to invest in a practical and affordable manner while still retaining those valuable returns.

Impressive returns: Investing a lot of cash at the right time could feel great temporarily, but DCA provides impressive, reliable returns over the long run. If you invested $400 per month in an S&P 500 index fund for 40 years at an average return of 8%, by the time you retire your account balance would look something like this: $1,252,161.10.

Thinking of starting your own long-term investing and DCA journey?

It's easy with Origin Invest's recurring transfer setting. Just choose when to deposit funds into your account and how frequently, and Origin will handle the trading and rebalancing to ensure you can truly set it and forget it. The best part is that Origin doesn't charge advisory fees, so you get to keep more of your returns. Log in to open your Origin Invest account today.