How dollar-cost averaging can help you build wealth

By Vanguard

Investing strategy

When it comes to investing successfully, it helps to focus on the factors you can control.

Dollar-cost averaging, which involves systematically investing sums of money at regular intervals, can be a powerful strategy to help you reach your financial goals.

Here’s what dollar-cost averaging is — and how it can help you build long-term wealth.

What is dollar-cost averaging?

The idea behind dollar-cost averaging is simple. By spreading out purchases of investments (such as shares and bonds) over regular intervals, we can help even out the ups and downs of the market.

For example, if you have some money from your job left over after your regular expenses, you might decide to use that for investing.

One approach could be to set up an automatic transfer to a brokerage account to use to build a long-term portfolio using exchange-traded funds (ETFs).

By investing on a regular schedule, you can reduce the risk of bad timing. That’s because in months when the market goes down, you’ll pay less for the investments.

Over time, investments tend to grow in value, especially growth assets like shares. For example, if you had invested $10,000 in the Australian share market on July 1, 1994, it would have been worth over $135,000 by 30 June, 2024. That is based on the performance of the S&P/ASX All Ordinaries Total Return index, and assumes no acquisition costs, fees or taxes, and that all distributions were reinvested.

It’s important to note that past performance is not a reliable indicator of future performance. Additionally, this example is illustrative only and should not be taken to contain or provide an estimate for any specific investment return.

The table below illustrates how different weekly contributions can grow an investment portfolio over 10 years, starting with a balance of $5,000 and assuming a 6% annual return.

Weekly contribution amount	Balance after 10 years
$25	$26,089
$30	$29,516
$35	$32,943
$40	$36,370
$45	$39,797
$50	$43,224

^Source:^{Vanguard. Note: Past performance is not a reliable indicator of future performance. The example is illustrative only and is based on the factors stated. It should not be taken to contain or provide an estimate of any specific investment return.}

How Vanguard’s Auto Invest feature simplifies dollar-cost averaging

While you can implement a dollar-cost averaging yourself, Vanguard Personal Investor’s Auto Invest feature can do it for you.

It’s easy to set up and only takes a few minutes. Here are the simple steps to follow:

Open a Vanguard Personal Investor Accountor log in, then select ‘Auto Invest’ from the left-hand navigation menu.
2. Choose from Vanguard’s wide range of exchange traded funds and/or managed funds for your Auto Invest plan. You can add multiple investment options
3. Choose your regular investment amount, starting from $200.
4. Choose how often to invest — either fortnightly, monthly, or quarterly — and select a start date.

Auto Invest plans can be cancelled at any time or paused and resumed.

Once set up, Auto Invest will direct debit your nominated bank account at regular intervals, then use the money to invest in the products you’ve selected.

Importantly, you’ll pay $0 in brokerage for purchases of Vanguard ETFs, but other fees and costs may apply. A $9 flat brokerage fee applies to sales of Vanguard ETFs, as well as buy and sell transactions for ASX direct shares.

How dollar-cost averaging can help you harness the power of compounding

Thanks to the power of compounding, small regular contributions can turn into a significant sum over years and decades.

The longer you save and invest, the bigger your investment can grow. Reinvesting any dividends and distributions can speed up the process even further.

Famous investor Warren Buffett has likened the combination of time and compound interest in wealth creation to a snowball rolling down a hill.

“Life is like a snowball,” he said. “The important thing is finding wet snow and a really long hill.”

^{Important Information}

^{This information has been prepared by Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263). We have not taken your objectives, financial situation or needs into account when preparing this information so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs, and the disclosure documents for any financial products before making any investment decision. Before you make any financial decision regarding Vanguard’s financial products, you should seek professional advice from a suitably qualified adviser. Past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. This publication was prepared in good faith and we accept no liability for any errors or omissions.}