How Dollar Cost Averaging Can Make You a Millionaire

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Have you ever wanted to invest in the stock market using a hands-off and automatic approach? 

With the dollar cost averaging strategy, you can.

If you’re ready to learn about one of the easiest and most passive investing strategies, then keep reading.

In this article:

(Bonus: In this article, I’ll show you how you could become a millionaire by 49 if you apply the dollar cost averaging strategy). 

What is Dollar Cost Averaging?


If you’ve asked yourself, “can investing make you rich,” then the answer is yes – depending on the investing strategy you implement.

One of the best investing strategies to build long-term wealth is the DCA dollar cost average strategy.

Dollar cost averaging is a simplified and automatic investing strategy where you (the investor) can systematically take advantage of market ups and downs.

The keywords in this definition are:

  • Automatic
  • Recurring

You could do monthly or even daily dollar cost averaging – it just depends on your comfort level and the amount of money you can invest.

Instead, you can do the things you have to do, like focus on your family and your job. 

Some examples of investment applications that can help you with your dollar cost averaging strategy include:

  • Acorns (for investors who are just starting out) 
  • M1 Finance (for those investors who are focused on the long-term)
  • Coinbase (for investors who want to invest securely in cryptocurrency)

Investing in your workplace retirement plan is completely automatic and you typically don’t have to think twice about your dollar cost averaging frequency or investments.

what is dollar cost averaging

How Does Dollar Cost Averaging Work?


Especially when it comes to investing in the stock market, people are naturally driven by emotion – which is not always a good thing.

In fact, most people buy at the wrong time (when stock market prices are at all-time highs) and most people sell at the wrong time (when stock market prices are at all-time lows).

So, why is dollar cost averaging a good idea?

The DCA strategy takes out the human emotion by investing your money automatically in a pre-determined stock (or bond). 

Here’s an example of how to calculate the dollar cost average strategy:

Let’s take Amazon’s stock to calculate a dollar cost averaging example.

amazon stock price september 2021

Source: Google Finance

Let’s say that you decide to invest $100 into the Amazon stock for 5 days straight, the second the market opens (which is 9:30 am EST).

Here’s how the numbers would look:

Date Invested Share Price Shares Purchased

Sep. 13

$3,485.00

0.0287

Sep. 14

$3,475.55

0.0287

Sep. 15

$3,444.35

0.0290

Sep. 16

$3,459.96

0.0289

Sep. 17

$3,492.06

0.0286

While $100 won’t buy you a lot of Amazon shares ($100 / share price), you can see how dollar cost averaging takes advantage of daily price fluctuations, which can help you buy more – and sometimes less – of the Amazon shares.

Here’s a quick overview:

  • Investment strategy: DCA
  • Total amount invested: $500
  • Total number of shares purchased: 0.1439
  • Average cost per share = $3,474.64

The average cost per share (total invested / total number of shares owned) is $3,474.64.

Dollar cost averaging stocks can help you get a bigger bang for your buck because you lower the cost of a share by investing over a period of time rather than investing in 1 lump sum at a given period of time. 

Here’s what would have happened if you decided to invest your $500 as a lump sum on the first day of our trial:

Date Invested Share Price Shares purchased

Sep. 13

$3,485.00

0.1434

Below is a breakdown:

  • Investment Strategy: Lump Sum
  • Amount Invested: $500
  • Shares Purchased: 0.1434

However, if you had invested using the dollar cost averaging strategy, the breakdown would read:

  • Investment Strategy: DCA
  • Amount Invested: $500
  • Shares Purchased: 0.1439

In this dollar cost averaging vs. lump sum investment scenario, it makes more sense to invest over a period of time – because you save money and you get more shares.

This is where I like to multiply differences using a bigger scale.

If you multiplied the shares purchased by a factor of 1,000, you would immediately notice a difference: 1,434 shares purchased versus 1,439 purchased (which is a difference of several thousand dollars). 

Stocks aren’t the only example that work with dollar cost averaging. 

In fact, you could practice dollar cost averaging S&P 500 index funds or you could even start dollar cost averaging crypto!

dollar cost averaging guide

How to Start Dollar Cost Averaging


Below are several steps you can take today to develop your dollar cost averaging strategy and build long-term wealth. 

Step 1: Open an Investment Account


First things first, to start dollar cost averaging, you’ll have to open an investment account. 

If you don’t want to invest $100’s or $1,000’s – yet – into an investment account, check out Acorns 👇

With Acorns, you can start investing with as little as $5.

If you want to invest $100’s or $1,000’s, then check out M1 Finance 👇

M1 is the future of finance in a sleek, modern app.

With M1 you can enjoy :

  • Automation
  • Free investing
  • High yield checking
  • Low rate borrowing
  • Investment optimization

M1 Finance certainly is an app that steps up your investment game if you’re ready to accomplish millionaire status.

Step 2: Select Your Investment Frequency


Select the frequency you want your money to be pulled from your checking account into your investment account.

This could be:

  • Daily
  • Weekly
  • Monthly

Step 3: Determine Your Investment Amount


The next part is figuring out how much money should be pulled from your bank account and into your investment account.

If you signed up with Acorns, you can invest with as little as $5 – and you can invest in 5 basic portfolios:

acorns 5 portfolios

Source: Acorns Invest

Typically speaking, if you select the most aggressive portfolio, you are taking on more risk (for a potentially greater return). 

The younger you are (and the more years you have in the stock market before you start withdrawing money for retirement), the better it is to consider investing in an aggressive or moderately aggressive portfolio. 

However, if you signed up to M1 Finance, then you can customize your portfolio – or choose from 80+ pre-designed portfolios.

m1 finance pie

Source: M1 Invest

Because M1 Finance offers more selection, this app could be a better fit for more experienced investors.

Step 4: Select Your Investment Types


Now it’s time to select which investment(s) you would like to purchase with your dollar cost averaging strategy. 

If you want a financial expert’s opinion to determine which investments would best suit you, take a peek at the Seeking Alpha investment platform 👇

You could invest in several different selections, such as:

  • ETFs
  • Bonds
  • Stocks
  • Index funds
  • Mutual funds

If you selected only 1 investment (like the S&P 500 index fund), then you would naturally mark that 100% of your dollar cost averaging to go to that particular fund.

What if you have selected multiple stocks you want to invest in?

For example, let’s say you want to invest in:

  • VOO – Vanguard S&P 500 ETF
  • VTI – Vanguard Total Stock Market ETF
  • VSMAX – Vanguard Small-Cap Index Fund

Let’s explore how you can dollar cost averaging into multiple investments with this hypothetical scenario.

dollar cost averaging strategy example

If you invested $250 every 2 weeks:

  • 30% of the $250 bi-weekly investment plan would purchase the Vanguard Small-Cap Index Fund
  • 30% of the $250 bi-weekly investment plan would purchase the Vanguard S&P 500 ETF
  • 40% of the $250 bi-weekly investment plan would purchase the Vanguard Total Stock market ETF

If you increase your contribution (let’s say you received a promotion at work and now instead of contributing $250 every 2 weeks, you can contribute $300 every 2 weeks), the percentages would automatically increase the dollar amounts to purchase your investment options.

That’s the beauty of dollar cost averaging: It’s hands-off and it’s automatic.

Market Timing vs. Dollar Cost Averaging


Perhaps you’re asking yourself, “is dollar cost averaging a good idea?”

While no one knows what the markets are capable of doing in the next day let alone the next 10 years, it could be fair to say that markets are likely going to be higher in the future than where they are today. 

That’s why it’s important to understand the foundation of dollar cost averaging. 

Look at this illustration of the stock market over the past several decades:

s&p 500 chart 1981-2021

Source: Google Finance

As you can see, the stock market has seen up-swings and down-swings.

However, we don’t know when the absolute market bottom will be and when the market peak will be because we aren’t fortune tellers.

This is where the DCA strategy comes into play.

To ensure you get a piece of the pie, you can start dollar cost averaging investing into the stock market over very long periods of time (we’re talking 3 to 5 decades). 

Do not try timing the market.

In a perfect world, you would know whether markets are sitting at all-time highs today and whether or not you should sell your investments. 

But, we don’t live in a perfect world and we don’t know what markets will do tomorrow. 

It’s not about timing the market, it’s about time in the market.

Typically speaking, the goal of market timing is to reduce losses by either pulling out of the markets completely at a market high (in anticipation of a market low) or by investing 100% in a market low (in anticipation of the stocks increasing). 

Below is the statistical data that shows why this theory is inherently flawed.

The first chart below illustrates your expected annual return on a $10,000 investment in the S&P 500 if you invested for 20 years versus if you timed the market and avoided the trading days with the biggest losses.

Market Timing Missing The Worst Days

Data Source: IFA

If you had missed the 40 worst days in the S&P 500, then you could have increased your overall investment returns by almost 118%.

However, most investors don’t perfectly time the market and miss days with the biggest gains, which causes their performance to turn negative, as illustrated below.

Market Timing Missing The Best Days

In an ideal world, market timing could be the ultimate millionaire investing strategy, however, our crystal balls seem to be broken.

That’s why consistent and automatic investing with the dollar cost averaging formula is how you can ensure to take advantage of the positive annualized returns, regardless of missing the days with the worst losses.

fiona smith the millennial money woman

The Bottom Line:

The key to making wins in the stock market with the dollar cost averaging strategy is staying invested for the long run - no matter if the market is experiencing ups or downs.

Dollar Cost Averaging & the Markets


Dollar cost averaging is a powerful tool that you can implement as your investing strategy especially if you want to invest consistently over the long term and remove your emotion from investing in the stock market. 

To gain a better idea of how dollar cost averaging works, it’s also important to take a look at other investing strategies for comparison purposes.

Lump Sum Investing


Lump sum investing is when you invest 1 amount of money (like $1,000) in the stock market at one point in time. 

Let’s take the Tesla stock, for instance. 

tesla stock price september 21 2021

Source: Google Finance

Let’s say that you decided to invest your $1,000 as a lump sum investment into Tesla on market open (which is 9:30 am EST) on Tuesday, September 21, 2021.

How many shares would you have purchased?

Here’s the calculation:

Lump Sum Investment Example

Lump Sum Investment

$1,000

Price per Share

$734.79

Formula for Total Shares Purchased

$1,000 / 734.79

Number of Shares Purchased

1.36

This is an example of a lump sum investment – you effectively dump your cash into the stock market at 1 point in time and you buy shares for 1 price.

Now, let’s take a look at dollar cost averaging in a declining market.

A Declining Market


Declining markets – like the one in March and April of 2020 or during the Great Recession of 2008 – can be scary, they can be painful, and they can cause people to sell at the worst time possible.

Yes, stock prices are decreasing during a recession.

What I try to do is reframe my mindset from “everyone is losing money in the stock market,” to “all these stocks are on sale!”

Instead of buying an overvalued Tesla stock at $742.39 for example, a stock market recession could lower the Tesla stock prices to $109 – like during the March/April COVID recession.

Imagine if you had started daily dollar cost averaging into Tesla during a declining market like in early 2020.

tesla stock price march 2020

Source: Google Finance

Take a look at how many Tesla shares you could have bought if you were dollar cost averaging your $1,000 investment in a 5-day period (so investing $200 daily).

DCA Example

Total Investment

$1,000

DCA Time Frame

5 days

Amount Invested Daily

$200

Here’s the break-down of each Tesla share cost per day, back in early 2020 as the COVID-19 pandemic rolled around:

tesla historical data march 2020

Source: Investing.com

Here’s how many shares you could have bought for $200 each day:

Cost of 1 Share Shares Purchased

$85.51

2.34

$86.86

2.30

$101.00

1.98

$107.85

1.85

$105.63

1.89

In other words, if you had stuck to a dollar cost averaging strategy in down markets, you could have bought around 10.36 shares of Tesla (which would be worth now $7,691.16) versus buying only 1.36 shares (worth $1,000) of Tesla stock in an upmarket.

Declining markets are scary, but if you stick to your dollar cost averaging strategy, you can make a lot of money in the long run.

A Level Market


A level market isn’t necessarily a bad type of market. 

A level market is just a market when not much activity is happening – for better or for worse – so you probably won’t see too much investment growth. 

Referring back to Tesla, the Tesla stock experienced a relatively flat market from 2010 to 2019. 

Take a look at the image below:

tesla stock price 2011-2021

Source: Google Finance

If you had started dollar cost averaging your $1,000 over 10 years, you probably would not have seen much growth in your investments.

There is only one caveat: Hindsight is 20/20.

No one knows whether today’s market will be a flat market for the next decade or whether today’s market will be the highest peak for the next 10 years. 

Since we don’t know how the market will perform in the future, even for flat markets, if you want to eliminate investing risk, then it’s likely a good idea to continue with your dollar cost averaging strategy. 

A Rising Market


A rising market is when the value of a stock continues to increase in value over a period of time with little to no downside. 

Almost everyone wants a rising market because there is virtually no downside (for now).

In fact, if you were to invest a lump sum of money in a rising market, you would probably have higher returns than if you were to dollar cost average a small amount of your money over a period of time.

Let’s take a look at the Tesla stock example, again.

tesla stock price november 2020

Source: Google Finance

Let’s say you had invested your $1,000 as a lump sum on November 20, 2020 where it seemed like Tesla stock was on a rising trend.

Lump Sum Investment Example

Lump Sum Investment

$1,000

Cost of 1 Tesla Share

$489.61

Number of Shares Purchased

2.04

Now, let’s take a look if you had considered a dollar cost averaging approach by investing your $1,000 over a 5-day period.

tesla historical data november 2020

Here’s how many shares you could have bought for $200 each day:

Cost of 1 Share Shares Purchased

$489.61

0.41

$521.85

0.38

$555.38

0.36

$574.00

0.35

$585.76

0.34

Are you noticing a trend?

In other words, you’d get more bang for your buck if you had invested your $1,000 as a lump sum and not with the dollar cost averaging strategy.

Take a look at the number of shares you would have with dollar cost averaging vs. lump sum investing:

Shares with Lump Sum Shares with DCA

2.04 (worth $1,510.80)

1.84 (worth $1,362.69)

While I might not be making a good case for dollar cost averaging with a rising market – I should note that no one knows if you are in a rising market.

Hindsight is 20/20. 

Stick to your long-term plan, and you’ll see the results.

Value Averaging


Another investing strategy is known as value averaging. 

When the stock price falls, you invest more.

When the stock price increases, you invest less.

Dollar cost averaging vs value averaging can both be beneficial investment strategies, it just depends on your investment personality and the amount of money you can invest in the stock market.

Below is a comparison between the two investing tactics:

DCA Strategy VA Strategy

Best for beginner investors

Best for advanced investors

Best for those who want automatic investments

Best for those who are engaged with active investing

Best for those who would want to sell in down markets

Best for those who see down markets as an investing opportunity

In the end, the difference between the two investing styles – dollar cost averaging vs value averaging – really comes down to your personality and your comfort level when it comes to investing.

Personally speaking, I prefer dollar cost averaging.

While I am comfortable with investing, I just find myself prioritizing other things (like my business) over checking the markets every day to consider when I should value average my investments.

I just don’t have the time – nor do I want to make the time.

That’s why I rely on my dollar cost averaging strategy to consistently and automatically invest my money in the stock market.

Reverse Dollar Cost Averaging


There are many stages of life – and there are also many stages in investing. 

Take a look:

Reverse Dollar Cost Averaging

I thought I might as well throw this strategy into the mix – except reverse dollar cost averaging is literally the opposite of dollar cost averaging.

Reverse dollar cost averaging occurs in the distribution phase of the finance circle.

Since retirees are no longer working, they’ll need to cover their basic living expenses by using the money they had initially invested in the stock market.

One systematic way of doing so is by withdrawing $1,000 every month (for example) from a particular investment.

I thought it would be a good idea to share this financial strategy with you – but I don’t think this is something to worry about for now, since you’re probably still in the accumulation stage of life.

Does Dollar Cost Averaging Really Work?


Yes, it really does. Dollar cost averaging is a great investment strategy producing solid returns – as long as you are consistent and focused on long-term progress. 

Dollar cost averaging offers 5 key benefits:

  • Great long-term strategy
  • Reduces stress when investing
  • Excellent for beginner investors
  • Takes the emotion out of investing
  • Helps avoid market timing mistakes

Dollar cost averaging might not be the best overall strategy, but if investing is stressful for you and if you don’t want to monitor the stock market daily, then the DCA strategy is your friend.

This is because historically speaking, markets have always increased in value – as shown by the example below. 

Let’s take a look at the example below, comparing dollar cost averaging vs lump sum investing:

  • You make a one-time, $10,000 lump sum investment at the beginning of each period listed below; versus
  • You dollar cost average $10,000 each month, per time period referenced below
lump sum vs various DCA strategies

Source: RBC GAM

The lump sum investing strategy, in orange, is the clear winner.

Do you have a large amount of money to invest? 

If the answer is no, then consider dollar cost averaging – even if it’s just with $5 – there are investment apps like Acorns that can get the job done for you.

I should also note that while lump sum investing does outperform dollar cost averaging most of the time – it doesn’t win all of the time.

In fact, dollar cost averaging beats lump sum investing 33% of the time. 

Dollar cost averaging beats lump sum investing 33% of the time

Source: Forbes Advisor

So, does dollar cost averaging really work?

Absolutely.

Drawbacks of Dollar Cost Averaging


While dollar cost averaging is a great investing strategy – especially for beginner and passive investors – there are some drawbacks.

Let’s take a look at some of the drawbacks of dollar cost averaging:

Dollar Cost Averaging Drawbacks

Not ideal for day traders

Can’t take advantage of price fluctuations

Potential for more trading costs due to more purchases

May leave some returns on the table compared to lump sum investing due to nature of increasing markets over time

Trading fees are certainly a concern, especially if you decide to apply the dollar cost averaging strategy.

One investing app that has no trading fees is M1 Finance

M1 Finance offers a very wide range of investment options – and it’s a great investment app for those who have some experience investing and feel comfortable selecting their own portfolio.

Then again, no single investing strategy is the “perfect strategy” for any one person. 

Everyone is unique – there are different:

  • Personalities
  • Risk comfort levels
  • Investing backgrounds

For some people, the DCA strategy is the best, while for those who prefer to take a more active role in the markets, value averaging might be a better option. 

Withdrawals counteract the goal of building wealth and investing for the long term.

That’s why I always emphasize that your DCA investments are not your emergency savings fund account and should not be withdrawn. 

Who Should Use Dollar Cost Averaging?


You should consider implementing the dollar cost averaging strategy if you can relate to the bullet points below:

Who Should Use Dollar Cost Averaging

You aren’t a day trader

You don’t want to actively monitor the markets

Investing during market downs stresses you out

You want to make consistent investments over time

You don’t have the time (or don’t want to spend the time) researching investment opportunities

Oftentimes, unless you’re 100% dedicated to your investment accounts, then dollar cost averaging might be the best investing strategy for you.

Even I, who is someone with plenty of investing experience, prefer to implement the DCA strategy because I honestly don’t want to be spending all of my time researching potential investment opportunities.

I prefer the automatic nature of the DCA strategy.

How to be a Millionaire with the DCA Strategy


When I say “anyone can become a Millionaire” I truly mean that anyone can 
become a millionaire.

You tell me what’s easier to digest:

  • Saving $152,820 over 45 years to become a Millionaire by 65; or 
  • Saving $9.43 per day to become a Millionaire by 65

I don’t know about you, but for me, the second choice seems so much more realistic – and less stressful! 

By understanding how much you have to save daily as opposed to annually or monthly, attaining your goal becomes so much easier. 

Let’s take a peek at how dollar cost averaging could help you become a millionaire over time:

Input Output

Starting Age

20 Years

Investment Timeframe

45 Years

Portfolio Starting Value

$0

Projected Return on Investment

7%

Investment Frequency

Bi-Weekly

Investment Amount

$250

Projected Ending Portfolio Value

$1,001,158

While you won’t join the two-comma club right away, you will start seeing progress over time.

the millennial money woman blog post "how to be a millionaire by 49"

How to be a Millionaire by 49


Let’s say you are 20 years old and want to become a millionaire before age 50.

It’s still possible. 

You’ll have to save about $30.83 per day assuming a 7% return on investment. 

Check out the math below:

Input Output

Starting Age

20 Years

Investment Timeframe

29 Years

Portfolio Starting Value

$0

Projected Return on Investment

7%

Investment Frequency

Bi-Weekly

Investment Amount

$462.50

Projected Ending Portfolio Value

$1,000,273

Even though I would love to see every young 20-year-old aiming to save $462.50 every 2 weeks, this goal might not be realistic for everyone.

That’s because so many 20-year-olds find themselves stuck in debt and often in low-paying jobs (that’s where finding a side hustle can often help!!).

 What if you can afford to save at 25 versus age 20?

Check out how the dollar cost averaging strategy can still help you reach millionaire status if you start saving at age 25.

the millennial money woman blog post "how to be a millionaire by 49 if you start at 25"

How to be a Millionaire by 49 if You Start at 25


Below you’ll see how much you will have to invest on a bi-weekly basis if you start investing at age 25 and want to become a millionaire before age 50. 

Input Output

Starting Age

25 Years

Investment Timeframe

24 Years

Portfolio Starting Value

$0

Projected Return on Investment

7%

Investment Frequency

Bi-Weekly

Investment Amount

$694.50

Projected Ending Portfolio Value

$1,000,420

Notice how you’ll be paying more than $6,000 per year to make up for 5 years of lost time (starting saving at 25 versus at age 20).

Even if you can invest $5 per day, then do it! 

Don’t allow lifestyle creep to impact your dollar cost averaging goals.

How to be a Multi-Millionaire by 65 graph

How to be a Multi-Millionaire by 65


Do you enjoy going above and beyond? 

Are you someone who doesn’t “just” want to be a millionaire, but a multi-millionaire? 

If that sounds like you, then consider the following: 

  • Increase your earnings
  • Decrease your spending

Below is a hypothetical example of how you can become a multi-millionaire by age 65, if you start investing at age 25 and earn a hypothetical 7% annual rate of return.

Input Output

Starting Age

25 Years

Investment Timeframe

40 Years

Portfolio Starting Value

$0

Projected Return on Investment

7%

Investment Frequency

Bi-Weekly

Investment Amount

$607

Projected Ending Portfolio Value

$3,000,452

If you save and invest $40.46 per day for 40 years at a 7% return, you could be a multi-millionaire – and likely well into the $3-million-dollar number as well.

Instead of saying “I want to have 3 million in the bank by age 65,” consider saying “I will save and invest $40.46 per day until I am age 65.” 

The second statement is actionable, defined, and can help you make your goal a reality.

Dollar Cost Averaging Crypto


Are you a crypto enthusiast?

Believe it or not, you can implement the dollar cost averaging strategy for cryptocurrencies like Bitcoin and Ethereum as well. 

Take a look at the latest run for Bitcoin:

bitcoin price october 2021

Source: Google Finance

As you can see, Bitcoin has seen some volatility over the past couple of years.

It’s virtually impossible to predict where Bitcoin will be in the next year – let alone where it will be tomorrow.

However, if you’re looking to invest in Bitcoin for the long-term, and aren’t exactly sure how to start investing – then you should seriously consider applying the dollar cost averaging strategy!

Let’s say you have $1,000 that you want to invest in Bitcoin. 

First – if you haven’t yet – consider opening up a Coinbase account 👇

After opening your crypto trading account, consider applying the dollar cost averaging strategy for crypto.

Instead of investing a lump sum of $1,000 at a random point of time in the crypto markets, consider splitting up your $1,000 and invest that over time.

bitcoin price october 2020 to october 2021

Source: Google Finance

Here’s an up-close snapshot of the volatility in the Bitcoin markets.

If just looking at those ups and downs stresses you out, then dollar cost averaging could be your answer.

The DCA strategy systematically and automatically breaks up your big investment into many, smaller investments and buys your crypto over time.

Dollar cost averaging for crypto is also a good strategy to spread out your risk in these volatile crypto markets.

Dollar Cost Averaging Helps Those with Less to Invest


Dollar cost averaging might not be the best investment route for everyone, but the DCA strategy certainly is a great option for those who are not able to afford investing $100’s or $1,000’s of dollars in the stock market. 

In fact, if you open an investment account with Acorns, you can start investing with as little as $5.

One of the reasons why dollar cost averaging works is because this automatic strategy continues to invest in the markets – especially when times are volatile or when markets are low.

The DCA strategy invests for you, regardless of economic conditions.

While bear markets and recessions might spell danger, they should also spell opportunity.

In fact, if you invested $1,000 in the S&P 500 in 2008 (the Great Recession), left your money invested, and forgot about your account until 2020, you would have $4,158.00 in your account.

While the investment gains might not be linear in the short term, if you zoom out and look at the long-term, the stock market almost always increases in value.

Take a look at the fluctuations below:

Investing in Bear Markets

It might be scary to invest when the market just keeps going down.

Here are some tricks that I employed while investing during a recession:

  • Follow your budget
  • Keep your expenses low
  • Remember to focus on the long term
  • Rely on your dollar cost averaging strategy

When you’re in the heat of the moment, it’s never easy to keep your emotions out of the game, but it’s necessary to win for the long term.

FAQs

While dollar cost averaging may not always be the best strategy, the DCA formula does remove emotion from investing in the stock market.

It offers consistent returns and reduces your overall risk of investing in the stock market by spreading your investments over a period of time (typically decades).

As long as you are consistent and investing for the long-term, chances are, the dollar cost averaging strategy will yield solid returns.

The dollar cost averaging formula focuses on simplicity, automation, and removing your emotion from investing in the stock market.

The DCA strategy is when you invest a set dollar amount into the same stock or index (like the S&P 500 index fund) at even intervals (e.g. weekly, monthly, etc.) over a period of time (typically several decades). Regardless of whether the markets are up or down, your dollar cost averaging strategy continues.

Dollar cost averaging is a good investment strategy for those who are looking to build wealth over the long term by investing small, consistent amounts of money.

However, there are other investing strategies that could also offer positive results such as reverse dollar cost averaging or considering dollar cost averaging vs value averaging, which sees the investor adjust their investment contributions to the portfolio in an effort to achieve a target growth rate.

An alternative to dollar cost averaging could be lump sum investing. When considering dollar cost averaging vs lump sum investing, one might argue that investing a lump sum today would likely improve your chances of making more money in the stock market versus investing small, consistent amounts of money over time. This is because historically speaking, markets have a tendency to increase in value.

It’s not about timing the market – it’s about time in the market. That’s why dollar cost averaging typically is a better strategy than timing the market.

Start by investing small, consistent amounts over long periods of time. You could consider dollar cost averaging weekly vs monthly or even consider daily dollar cost averaging. Historically speaking, dollar cost averaging will earn you more than professional hedge fund managers who aim to time the market.

Closing Thoughts


Investing and building wealth is generally not a short-term game. 

In fact, to become financially free and build passive income streams, you need to maintain a long-term mindset. 

This is where dollar cost averaging can help you stay in the long-term game.

Dollar cost averaging is a benefit to building wealth because:

  • It invests your money automatically
  • It is a passive way to building wealth
  • It takes out your emotion from investing

While you might not see immediate results with dollar cost averaging, if you are consistently sticking with your game plan, chances are, you’ll see success in the decades to come.

In the end – you have the power to start your investment journey today.

It is 100% possible for anyone to become a millionaire – as long as you are consistent, maintain a long-term approach, and if you don’t withdraw any of your assets while dollar cost averaging. 

If you’re ready to become a millionaire, it’s time to break down your goal into simple daily savings habits.

If that means you have to start saving and investing $9.43 per day to make your millionaire dream come true, then it’s time to figure out how you are going to accomplish that goal.

Maybe that means you don’t go to Starbucks.

Maybe reaching your millionaire goal means you’ll need to get a roommate.

Sometimes managing your money is more of an art than a science.

Stick with your plan, and it will pay off in dividends (no pun intended). 

What has your experience been with dollar cost averaging? Let me know in the comments section below.

Fiona Smith
Fiona Smith
Fiona Smith is the founder of The Millennial Money Woman. She holds her Master of Science Degree in Personal Financial Planning, has advised decamillionaires for 6 years in the corporate wealth management sector and has co-founded a local non-profit community teaching financial literacy. She is the author of the personal finance book How to Get Rich from Nothing and her work is featured on Forbes and FinCon.

2 thoughts on “How Dollar Cost Averaging Can Make You a Millionaire”

  1. Awesome blog, I just discovered it today. And great post on DCA. I practice dollar cost averaging as well. I invest into dividend growth stocks each pay. It is literally paying dividends because of my investment strategy. At the end of the day, it is long-term consistency and savings rate that matters most. Dollar cost averaging is a foolproof strategy with the right investments over a long enough time frame. Glad I found your blog, I look forward to reading more.

    1. Graham,
      Thank you so much for your kind words – I am delighted to hear that you enjoy reading the blog. You’re absolutely right that the DCA strategy is a great long term investment strategy to build and maintain wealth. I wish I learned more about DCA’ing when I was a teenager – but better late than never, right? Keep up the fantastic work and thank you for sharing your thoughts!
      Cheers,
      Fiona

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