Q: I started a new job and I’m aiming to save 15% of my monthly salary to put away for investments. Should I invest a small amount each month or is it better to invest it all at the end of the year?

A: Dollar Cost Averaging (DCA) refers to the practice of investing a fixed amount at defined intervals (often monthly) into a fund or portfolio of funds. By investing this way more units are purchased as prices drop and fewer units are purchased as prices rise. Investors use DCA to guard against the market dropping shortly after investing a lump sum.

By investing regularly, investors are able to put their assets to work as quickly as possible. Intelligent investors know that time is a key element in securing their financial futures. The faster they put their assets to work, the more money they will have available when it is time to reap their rewards.

Let’s examine this principal with some numbers. If you were to invest $3000 at the end of the year, at an average return of 11.5% it would be worth about $657,000 thirty years later. Alternatively, if you were to invest the same total amount as $250 per month instead, it would add up to $782,000 over the same thirty years. That’s a big difference! Putting your money to work as fast as possible will add up over time.

Money Matter Q&A