As long-term investors and holder of equity, we seek the most optimal process to accumulate and build wealth over time. That being said, most of us have finite amounts of time and money. The best thing anyone can do is start early and be consistent with their investment time horizon. We’ve documented the results of this in our Work Smart, Not Hard posting.
Now we will explore Dollar Cost Averaging which is a popular concept of allocating a fixed amount of money over a specific time frame. As an example, one might choose to allocate $100 per month for 5 years or $6,000 total. The power of Dollar Cost Averaging coupled with the power of compounding are apparent in our example below. Let’s assume we start our investment in 1990 and invest $100 per month for 5 years, that $6,000 total invested would have risen to $68,055 by the end of November 2021.
Our team has created a free excel Dollar Cost Averaging tool here so that you can run your own scenario.
The areas in red boxes are the places where you can change the date, amount invested per year, and the total time invested. By right clicking inside the chart and selecting "refresh data" in the red circle, you can see the change in the value of the scenario you have constructed. Here's to a prosperous 2022 and beyond.