The Magic of Dollar Cost Averaging: The Simplest Way to Outperform All Your Friends
๐ฏ Forget Market Timing
I've felt that panic in my gut too. When stocks fall, fear takes over. You start thinking, "Do I sell before it gets worse?"
I've been there. I've made those emotional decisions, and I paid heavily for them.
But patience and planning are what separate principled investors from gamblers. Once you understand value and how to determine it, your perspective completely transforms. Price drops become golden opportunities, not disasters.
Today, let me talk about Dollar Cost Averagingโsomething I practice every single month.
๐ Don't Try to Time the Market
If the market fell 50% tomorrow, SCHD would fall hard tooโof course it would. Maybe not 50%, but who knows?
That's why I dollar cost average every single month.
Look at this chart. You don't know when it's going to be up, down, up, down. That's why I buy all along the way.
My return flattens out through all the volatility. Sometimes I pay a lot, sometimes a little, but over time I pay the same amount and get the same return as the market.
And it takes all the thinking out of it.
๐งฎ What Is Dollar Cost Averaging?
Dollar cost averaging is simple:
Invest the same amount regularly
- ๐ Same day every month
- ๐ต Same amount every time
- ๐ Regardless of market conditions
Why Does It Work?
| Market Condition | Your Action | Result |
|---|---|---|
| Price is high | Invest same amount | Buy fewer shares |
| Price is low | Invest same amount | Buy more shares |
Over time, your average purchase price naturally optimizes. You buy high sometimes, low sometimes, but you end up getting the market's average return.
๐ข Remove Emotions from Investing
The biggest enemy in investing is emotion:
- ๐ฐ Fear: Panic selling in downturns
- ๐ค Greed: Going all-in at the top
- ๐ Anxiety: Constantly checking the market
Dollar cost averaging completely removes these emotions from the equation.
When you invest the same amount on the same day every month:
- โ No need to check the market
- โ No need to react to news
- โ No need to wonder "Is now a good time?"
Just invest. That's it.
๐ Real Example: QQQ During the Dot-Com Bubble
Here's something amazing.
Let's say you started investing in QQQ at the very peak of the dot-com bubble in March 2000. That was literally the worst timing in history. After that day, the market fell 80%.
But if you had kept dollar cost averaging from that day until today?
Your returns would be over 14.5% per year.
This is the power of dollar cost averaging:
- ๐ด Even starting at the worst possible time
- ๐ด Even experiencing an 80% crash
- ๐ข Consistent investing leads to excellent returns
๐ How to Beat Mutual Fund Managers
Here's the best part.
Think about those Harvard MBA fund managers. They earn high salaries, use complex strategies, and try to beat the market.
But research shows that over 90% of active fund managers fail to beat the market over the long term.
So how can you do better?
- Choose low-cost index ETFs (like SCHD, QQQ, SPY)
- Dollar cost average every month
- Hold for 20+ years
That's it. This approach beats most professional fund managers.
๐ Planning for 21 Years From Now
I love doing my projections for 21 years from now.
I have goals for what I want to have at 65. That way, I can make big decisions about what I'm going to do with the remaining 30+ years of my life.
SCHD fits into that goal. My real estate fits into that goal. My businesses fit into that goal. And my individual stocks too.
๐ก Why Dollar Cost Averaging Matters
Dollar cost averaging is something everyone needs to understand.
Because it's literally the simplest way to outperform all of your friends.
Key Benefits
| Benefit | Description |
|---|---|
| ๐ง Psychological comfort | Zero market timing stress |
| ๐ Risk distribution | Average cost reduces volatility |
| ๐ฏ Discipline | Emotion-free investing |
| ๐ช Long-term performance | Better than most pros |
| ๐ง Simplicity | No complex analysis needed |
๐ Start Today
Have you ever felt like investing is complicated? Wondered which stocks to buy or when to sell?
With dollar cost averaging, you don't need to worry about any of that.
3 Steps to Get Started
- Choose an ETF: SCHD, QQQ, SPYโwhatever fits your goals
- Set an amount: Decide how much to invest monthly
- Automate it: Set up automatic investing on the same day each month
No guessing, no stress, no trying to time the market.
And the best part? Doing this consistently will beat over 90% of mutual funds and all of your friends over the long run.
๐ Final Thoughts: Simplicity Is the Answer
Building wealth is actually a very simple process. You need a simple plan and a few key tools to execute it.
Don't just stop at ETFs. Wait until you see what's possible when you combine SCHD with carefully picked individual stocks.
But the foundation of all of it is dollar cost averaging. Every month, consistently, without emotion.
This is how the real pros build wealth.