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The Simple Investment Principle You've Never Heard Of

The Simple Investment Principle You've Never Heard Of

Contributing to your investment accounts doesn’t have to be complicated. It's actually very simple.

Look at your budget and come up with a fixed amount you can put into your IRA on a regular basis. It’s just like paying for your Spotfiy subscription, or your rent! Have an amount in mind, and have it automatically deducted from your account each month. I’ll use myself as an example. I started with putting $200 a month into my Roth IRA when I was first out of school. Little did I know, I was taking advantage of a principle called dollar-cost averaging, or DCA. It’s my favorite investing principle and I’ll explain why.

By investing the same dollar amount each month you’ll get more than you bargained for, buying more stocks when they are cheaper. And when stock prices are high, you’ll buy less with the same amount of cash. That’s DCA working on your behalf! Over time you end up paying below average cost on stocks, hence the name dollar-cost averaging. In other words, you save money and you don't even have to think about it. If you’re wondering, “what’s a stock again?”- don’t worry, use this simple investing vocabulary guide to get caught up.

Here’s another way of explaining the principle that you'll be able to relate to. It’s the equivalent of shopping at your favorite store each month with the same budget. When there isn’t a sale, you pay full price but buy less. When there is a sale, you take advantage and buy more!

The best part is once you automate an amount regularly coming from your bank account into your IRA, you don’t have to worry about it until you’re like 70! If you know nothing else about investing but let the principle of DCA work its magic, you’ll be well on your way to paying below average cost on stocks and padding your investing accounts! 

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