In my last post, I wrote about what Dollar-Cost Averaging is about and gave some example of how it works.
Today, I’m going to talk about how I personally use Dollar-Cost Averaging in my “real life” and why I think overall it’s the way to go.
Dollar-Cost Averaging in Practice:
- 401(k) - For the most part the mutual funds that I’m invested in get the same amount invested in them, month after month. This is by far where I use dollar-cost averaging the most.
- Kid’s 529 - I had to do a little more work to get these accounts setup to use Dollar-cost averaging versus my 401(k), but not much… maybe 10 minutes total (nice)! I deposit $200 per kid per month (just in case your curious). I started the accounts when they were each (2 kids) born.
- Brokerage Account – I do a lot of work to get this to be dollar cost averaged, and it’s only for 1 particular stock that I do it for! This can be automated like the processes above, but I like doing it manually, don’t ask me why (I have no idea why…), but it’s fun.
- Dividend Reinvestment Stream – This is reaching a bit, but I have a stocks that distributes monthly dividends. So for this one particular stock that I own (Realty Income Corp, ticker: O)*, I’m in their DRIP (Dividend Reinvestment Program). You could have your stocks reinvest in themselves for quarterly distributions too. They are all good.
And there you have it! These are the ways that I use the very powerful Dollar-Cost Averaging concept.
How do you use dollar-cost averaging?
*Realty Income Corp – I’m long on and own this stock.
(disclaimer, I’m not recommending this stock, I’m just displaying what I’m doing. Please don’t purchase this stock without doing the necessary research and talking to a financial adviser first. Or at least doing the proper homework before jumping in).