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DCA - dollar cost average
You are buying something in multiple separate transactions to smooth out price fluctuations. This can be over whatever time frame and frequency you want.
E.g. You have 12k but don't feel comfortable buying into the market all at once. You buy 1k of index funds every month for 12 months. You may or may not be better off this way (statistically you'll be worse off over the long run), but it gives you peace of mind, especially during uncertain market volatility (like now).
You can do this with any investment in any account (Roth IRA, 401k, brokerage, etc).
The brokerage you use doesn't matter. I use Fidelity if that helps. I would focus on tax advantaged accounts (IRA, 401k) before looking at a taxable brokerage account.
I would just buy index funds like VTI. I don't like individual stocks as I doubt my picks would beat the market in the long run.
The brokerage you use only matters in that
1) some make very easy to set up recurring auto invest rules, and some oddly don’t. It’s a pretty common feature but not universal
2) there may be some differences in trading costs (commissions, spreads)
3) if you use a fund company like Fidelity or Vanguard, investing in their own funds can may have 0% expense ratio - even better than the 0.02 - 0.08% expense range of most large scale ETFs
A lot of people think it's just having a large sum of money and spreading the contributions out. E.g., instead of dumping $12,000 into the market today (which statistically is the ideal move), they'll do something like $1,000 every month for a year or $2,000 every month for 6 months. This is to try and absorb any market volatility. If the market goes down, your $1k or $2k contribution will buy more. Conversely, if the market goes up, your contribution buys less.
Some people overlook that your monthly 401k contribution is also DCA. Each paycheck, you likely contribute some % of your pay to your 401k. That's DCA. Some people front load their entire 401k at the beginning of the year (which, again, is usually the ideal way to go) but this isn't financially feasible for 99% of people, so they make some regular monthly contribution. An IRA is the same way. People might put in $500 per month to make maxing out their IRA manageable ... this is DCA. If you can, front loading this is ideal, but $500 is much more manageable from a cash flow perspective.
If it were me, I'd dump the bigger sum into the market and let my 401k and Roth IRA contributions keep on keeping on with DCA.
Once you max your 401k and still have money left to invest. Go to vanguard or equivalent exchange, select VTSAX or a similar broad market fund and setup autopay from your bank account. This will keep buying every 15 days when your pay hits your account
Right. FXIAX will be Fidelity's equivalent or broad index fund.
The idea is just that if every week/month/year you invest the same dollar amount in a stock, as the price of the stock fluctuates, you wind up buying more shares at low prices than you do at high prices. So if markets are volatile, your weighted average entry price is actually a bit better (lower) than the simple average price over that period.
That said, if the price is also trending up (which it usually does in the long term), then investing as soon as you have the money is even better than DCA.
This is why people say “time in the market beats timing the market”.