Invest a set amount of money every month with one of the most successful investment strategies of all time- dollar-cost averaging! Ostrich’s DCA is the Way investing challenge will help you build the habit of investing regularly where you don’t have to become a stock market guru to build wealth. If you are interested in learning investing basics check out the retirement investing guide and the short-term investing guide.
Let’s dive into dollar-cost averaging and how the DCA is the Way investing challenge works.
What is the DCA is the Way investing challenge?
The DCA is the Way investing challenge is simple. Decide on an amount that you would like to invest in the stock market each month. Pick the ETF or stocks you will buy with that money. We recommend a low-fee index fund that tracks the S&P 500 or the entire stock market from a company like Vanguard. Then simply purchase that stock each month.
The reason DCA works so well is that no matter what the market is doing you’ll end up “dollar-cost averaging” into it. Meaning, when the market is high your money will buy you less shares, and when the market is down your money will buy you more shares.
The key is investing on a regular schedule like the 1st of every month.
Over time you’ll build a strong investing position.
Example of Dollar-Cost Averaging
Let’s say you choose to invest in the Vanguard S&P 500 index fund with stock ticker: VOO.
Let’s say the initial price is $100 and you choose to invest $100 every month.
Month 1: $100 per share = you buy 1 share. Total invested = $100
Month 2: $50 per share = you buy 2 shares. Total invested = $200
Month 3: $200 per share = you buy 0.5 shares. Total invested =$300
Yet because you didn’t try to time the market you now own 3.5 shares at an average price of $85.71 per share.
That’s the power of dollar-cost averaging!
When is the best time to start?
The best time to start the DCA is the Way investing challenge is now! The beauty is you don’t have to time the market because your money buys you more shares when prices are lower and less when prices are higher.
There is a trope that, what determines your returns is time in the market not timing the market. Many people have hurt themselves by focusing on timing the market versus getting in the market and staying invested in the long-term.
As famous investor Benjamin Graham said,
“The investor’s chief problem—and his worst enemy—is likely to be himself. In the end, how your investments behave is much less important than how you behave.”
Dollar-cost averaging is a tried and true way to build wealth over the long term. By investing the same amount every month no matter what the market is doing you’ll buy more stock when the market is low and less when it is high. On average you’ll get fair prices.
When we discuss long-term investing compounding interest becomes the main vehicle to building wealth. The longer you are in the market the more time your money has to work for you. To determine how quickly your money will double at a given rate of return or interest rate, use the Rule of 72.
Who is the DCA is the Way investing challenge for?
The DCA is the Way investing challenge is for anyone looking for a simple way to build wealth and doesn’t have the time nor desire to become a stock market savant. Essentially, this challenge is for you if you want to live your life on your terms but still set yourself up for financial success.
Dollar-cost averaging works best if you have a regular income that you’d like to put towards investing. If you come into a large amount of money all at once, it may be best to invest a larger amount earlier and then use dollar-cost averaging on an ongoing basis. FINRA explains the pros and cons of lump-sum investing versus dollar-cost averaging.
Are you ready to dollar-coast average your way to wealth?
You can sign-up for the DCA is the Way investing challenge on the Ostrich app.
How to implement the DCA is the Way investing challenge
Step 1
Sign up for the DCA is the Way investing challenge and set an amount you’d like to invest each month.
Step 2
Pick an existing retirement account or brokerage account to invest with. If you don’t have one open up a new brokerage account or learn about our favorite investing tools.
Step 3
Select your investments. If you’re not sure where to start, take a look at our Investing 101 guide for a primer. Low-cost index funds are an easy way to get exposure to a wide range of stocks, for example, consider Vanguard’s S&P500 fund (VOO) or Charles Schwab’s Total Market fund (SWTSX).
Bonus
If you want to really crush this challenge set up an automatic transfer each month.
Step 4
Check-in monthly on Ostrich to share your progress and get support from The Flock!
Tips for long-term investing
Here are some long-term investing tips to help you during the DCA is the Way investing challenge!
Time in the market is more important than timing the market
Due to compound interest, the daily, weekly, and monthly fluctuations are not as important for long-term investing. It’s more important that you are investing regularly so you can let your money grow in the markets. Historically the S&P 500 has returned 10-11% since its inception in 1926 according to Investopedia.
The Power of Low-Cost Index Funds
Low-cost index funds are a way for you to invest in a basket of stocks all at once. It allows you to achieve the average return without having to constantly pick stocks, trade stocks, and become an active investor. In fact, only 24% of actively managed funds outperformed low-cost index funds in the past decade, according to Morningstar. Our favorite index funds track the S&P 500.
Patience is a virtue
When investing in the long-term it’s best not to constantly check your stock portfolio. Research has shown this can negatively impact your mental health. That being said it is important to monitor periodically, but avoid making big decisions when you are at a peak emotional state.
Use tax-advantaged accounts
If you are investing for the long-term and don’t need to sell your stock portfolio for the cash any time soon, prioritize investing through tax-advantaged accounts. For those with a 401k or 403(b) use those accounts first and then consider contributing to a Roth IRA or traditional IRA. There are limits on how much you can contribute each year so check the limits on the IRS website (401k, 403(b), IRAs).
Benefits of DCA is the Way investing Challenge
There are many benefits from participating in the DCA is the Way investing challenge.
Your money works for you
Every time you invest using the dollar-cost averaging approach you put your money to work for you. This is how to build wealth in the long-term is to have your money making more money. While early on it may not seem like much is happening initially. Over the course of 5, 10, 25, 50 years your money will continue to grow looking like a hockey stick of growth.
Feel more in control
It’s easy to get bogged down in the minutia of day-to-day life. Yet, when you employ dollar-cost averaging you will start to feel less anxious and more optimistic about the future. Investing for the long term builds your safety net and a strong foundation to live the life of your dreams.
Better financial decisions
Grounding yourself in DCA is the Way, you will feel less reactive to the random ticks, tips, and tricks that get thrown around about investing. You’ll be in a better position to research investment opportunities and invest in a way that aligns with what you wish to accomplish in life.
Tools to get there quicker
Automation
Set up an automatic transfer from your checking account to your DCA is the Way investing account. This will ensure that you don’t forget to invest and make it easier to stay on track. Additionally, if you set up the transfer through your brokerage account you likely can automate the purchase of the stock as well. This is one of the best ways to take the burden of remembering off of your shoulders and allow you to focus on other more fun things in your life.
Retirement account
There are tax advantages to investing through your retirement account. Don’t have a retirement account? That’s okay! Setup an individual retirement account (IRA) that you control through one of our partners.
Check to see if a Roth IRA or traditional IRA is better for you.
Related investing challenges to DCA is the Way include: Acquire Then Retire, Feeling Rothy, You’re FIREd, The Real Real, and FIREd Up.
What to do with your newfound habit
Now that you are dollar-cost averaging like a champ and investing in your future regularly, you can focus on other financial goals. Here are some ideas of other healthy money habits you can work on next.
Build your emergency fund
It’s important to have at least a few months’ worth (6 months is considered healthy) of living expenses built up. This provides a cushion for your quality of life in case you lose your income. If you feel like 6 months isn’t enough try building your savings to the level of your annual salary or until you feel comfortable.
Invest for the long-term
Another great use of your new savings is to invest. Research shows that investing for the long-term (10+ years) is the way to go. We recommend getting started with low-cost index funds vs. purchasing individual stocks and using the dollar cost average investing method. Check out our favorite brokerage accounts and our favorite auto investing tools on the Ostrich App.
Take a small calculated bet
Investing for the long-term is proven to be the most sure-fire and safe way to build wealth, but it is boring. Boring is good for your major goals. We like boring! But if you have a little extra money after making your boring investments and you are okay with losing a small amount of money, explore alternative moonshot investments. This could be anything from investing in cryptocurrency, NFTs, startups, art, collectibles, or that penny stock. The key is not to make this your main strategy. Never invest more than you can afford to lose not just financially, but also psychologically.
Give back
When you have built a strong financial foundation for yourself, one of the most rewarding things you can do is to give back. Whether it’s donating time, money, or resources, you can support the causes that are important to you. Check out the Don’t Hate Donate challenge on Ostrich.
Conclusion
The DCA is the Way investing challenge helps you invest on an ongoing basis using dollar-cost averaging. The power of dollar-cost averaging and compound interest will help you build wealth over the long term. Using automation and Ostrich you will build good money habits and gain confidence in your financial future. Feeling less anxious about money, you will be able to focus on the things you enjoy most in life while having peace of mind your money is working for you. Join Ostrich to get started on the DCA is the Way investing challenge and take control of your financial future.
