Getting Started through Dollar-Cost Averaging

Author: Ty Druse

In an earlier article, [Emotional Barriers to Investing], we explored why negative perspectives and perceptions cause individuals to become “stock averse.”  The term “stock averse” was coined in 2026 through research by Henkel and Pugnaghi-Zimpelmann.  How do investors remove some of the emotions associated with putting hard-earned money into the stock market?

The solution may lie with dollar-cost averaging, a simple strategy that helps investors build wealth over time without worrying about market swings.  But more importantly, dollar-cost averaging helps reduce the emotions associated with investing. 

Applying Dollar-Cost Averaging to Investing:

• Market Downturn: You are purchasing more shares at lower prices.
• Market Uptrend: You are purchasing fewer shares. 
• The Goal: You steadily invest with a gradual increase in market value over years and decades.  Focus on the long-term growth.
• Automation: You set the weekly or monthly amount and forget it.  The low-fee brokerages, Fidelity, Schwab, and Vanguard, all offer automated recurring investments into ETFs and Mutual Funds. 

Additionally, if you utilize dollar-cost averaging for a lump sum of money, the emotions associated with investing are reduced by dividing the total sum into weekly or monthly chunks over a six-, nine-, or twelve-month period.  How would you feel if you added a significant amount of stock to your portfolio only to find the market down 10% the next day?

When the market has a significant downturn, remember you are buying shares at a discount.  Slow and steady wins the race; allow time to increase overall assets through compound interest.  Dollar-cost averaging is used in most 401(k), 403(b), and other employer plans.  By using it in your individual Roth IRA and taxable account, you are utilizing the same methodology.

One of the easiest ways to invest and take advantage of dollar-cost averaging is to use automatic recurring investments instead of manually purchasing shares on a regular basis.  Here is an example of how to set up recurring investments at Vanguard for ETFs and Mutual Funds:

Exchange Traded Funds (ETF):

1. Add money to your Settlement Fund (Money Market Fund) or Cash Plus Account.
2. Purchase the desired ETF before setting up the recurring transaction.  You can start small and simply purchase a dollar amount matching your comfort zone.
3. Once you purchase the ETF, you can now set up the recurring transaction.
4. From your dashboard click on “Transact” and “Recurring Transactions”.
5. Decide which ETF(s) to place on a recurring purchase schedule weekly or monthly.  You can also establish a recurring bank transfer into your Settlement Fund.

Mutual Funds:

1. Recurring mutual fund transactions can be set up to be purchased through Settlement Fund (Money Market Fund), Cash Plus Account, or external bank account.
2. Purchase the desired mutual fund before setting up the recurring transaction.  Most require an initial $1000 investment.
3. From your dashboard click on “Transact” and “Recurring Transactions”.
4. Decide which mutual fund(s) to place on a recurring purchase schedule weekly or monthly.  You can also establish a recurring bank transfer into your Settlement Fund.

If you are interested in calculating wealth over a certain time period by applying the principles of dollar-cost averaging, try our [Compound Growth Calculator].

Building wealth is less about timing the market and more about time in the market.  Consider taking advantage of the concepts of dollar-cost averaging in your accounts to reduce the emotional side effects associated with investing.

References: Henkel, L., & Pugnaghi-Zimpelmann, C. (2026). Proud to Not Own Stocks: How Identity Shapes Financial Decisions. The Review of Financial Studies, Advance Access Publication.