What is "Dollar Cost Averaging"?
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This episode sponsored by smart vester connect with an investing pro for free at rainy solutions dot com slash vest. You are listening to ramsey everyday million's where we talk investing retirement, building wealth and our raise st. generosity. George, it's time this time our long learning segment talk nerdy to me.

hit me with that jingle.

Here is the nerd topic of the day that i'm going to break down in less than two minutes to help people out there understand that these ten dollar words out, they'll bother me when they are thrown out like dragon, but they're important. All right? Today's word or phrase dollar cost averaging your dca is they call IT in the biz. No one calls to that. But nuri just wanted to .

know that yeah gram nerds.

this is dollar cost averaging is an investment strategy to save a time and it's this simple IT means you're making regular investments over time regardless of what the stock market is doing. yeah.

So I don't feel like IT even needs a term.

Why do we need a fancy name for that? It's focused on the consistent dollar amount you invest .

as opposed to dropping a lumpsum every once in a while.

yeah a regular amount or a lump sum once a year. So we recommend dollar cost averaging for your long term investing because the longer money stays in one place, the more it's gona grow and investing consistently over time in one place. That's how you beat the market fluctuates. So for scared of the rollick.

this ones for you, I also think that hopes to build a nice habit, right? Yeah, you're building the habit of investing when you say, okay, every month this is automatically coming out. I know what the amount is. I mean.

we say if then you live, you live on less when you know five hundred boxes go on out your account, you just tend to live.

After all, you don't think about .

IT got a side out of mind. So if you put IT, let's say, five hundred box a month into your four one k on R A every month, you're essentially buying shares of the mutual funds. That's what are you doing with that five hundred box.

But remember, the value of those funds could go up, down each month. So time, some months that five hundred books goes a long way, goes, father, because the Prices are down. Yes, stocks goes down the means you're buying IT on sale.

Think of IT that way Price goes up. You're buying IT at a more expensive rate. But again, your dollar cost averaging.

So think of IT like your gas tank, someones you're two inter box. You budget IT for fuel gets you sixty gallons, but the Price per gallon drops the same two hundred stretches further. You get an extra ten gallons, you get seventy.

And so if the Price goes up, that's great too because your shares are worth more. So it's a very glashan kind of mentality here. And look at the numbers here, forty years of investing five hundred or a month at a ten percent average rate of return IT would have grown over to over two point six million, thanks to compound interest.

Yeah wow. And of that amount, get this. You only contributed. You only put your own money two hundred forty grand, what you put in IT turned into two point six million.

the power of time. So at over ten .

you made to over two point four million of free money because of the power of compound growth, because you did dollar cost averaging. And here's with the great news. For year, we surveyed millionaire over ten thousand.

Investment consistency was one of the most important factors. And building their million dot portfolio, they were actually average investors. They weren't great.

They weren't prodigies. They just put the same amount every single month for a long time. If you want to learn more, go to ramsey solutions to com slash invest. We've got a free complete guide to investing. Or you can click the link in the description of you're listening on youtube podcast.

This guy is going to teach you everything you need to know, including how to develop a personal investing strategy, how to pick the right investments using the rainy principles. And there we go. IT was painful.

Jade, painless? Oh, you're right, I don't know. He was painful for me, was IT. yeah. Well.

let's take IT a step further. So I mean, somebody out here is like, yes, George, thank you for that because I didn't know. But how do they know when they're ready to start dollar cost averaging .

their way to million? Good question. Lot of people. I want to there is a time in place for that now. And it's when you are out of consumer debt, you have three to six months of expensive saved in that emergency fund and that really becomes you're never going to dead again. Insurance yeah now already to invest because we have our income back in our hands before we were .

given out to lenders every month. There you go in the the big question there is, George.

why do I need to wait? IT would be nice to be. Yeah, tell tell more.

Because when you do seventeen things at once, you never really get anywhere. And that's most of america. If you've heard the calls, they go well and broke.

And I go why you make a great income. Well, we are trying to pay off that, trying to save with the kids call or trying to go on vacation. And that's why the baby steps are so powerful. It's focused intensity for the one three get emergency fund focus intensity. Then we move toward intention in fourth or seven.

Yeah because if you're investing the amount that we suggest, fifteen percent if you have debt, most people would not have that kind of income at they are disposal until they paid off their debt.

With other thing I get in the comment section, where is this guy think we're going be able to invest fifteen percent of our income and I go, hey, what's your car payment? Well, at six hundred box, what's your student loan payment? That's four hundred box. Well, IT looks oddly like a thousand bux that you could .

be invested right there is .

which is fifteen percent of an eighty thousand dollar salary, which is the household, you know, median income now so it's possible, but you got to decide, is our dead payments going to be Normal, or is debt free living and investing for the future going to be Normal?

okay. So now you've convinced to the person with debt to pay off their debt. And before they begin this journey, what about the person who is like, okay, paid off my debt. Why do I need to save up three to six months before I start? That's that's the kicker.

You get thrown off the every little ankle or bitter emergency. You go. Well, I kept my my savings logs. I want to invest. Well, the problem is life's going to happen in the meantime and the goal is we don't touch the emergency fund unless .

we need to yeah and if you don't have an emergency fund, if you don't have an emergency fund, your investments .

become your emergency capital credit card becomes your emergency. Found that twenty five percent A P R. I.

Can you really build wealth when you've got that count reacting .

anything you might be .

building right down? okay. So what your telling us, George.

is there's method to the madness you I wanted to.

I like when I get Georgeous nerdy wheels turning Georgeous one of .

the smartest people I know AI you need to hang out with more .

people but thank you all.

Thanks for listening to ramsey everyday millionaire need help with your investments. Connect with a smart vesta pro at ramsey solutions. Don't com slash west or click the link in the show notes. Randy solutions is a paid non climb promoter. Participating pros learn more rainsy solutions don't com slash smart vester.