08-22-2015, 07:59 AM
Divaddendum, welcome to DGF.
Dollar cost averaging (DCA) is investing a certain amount of money at regular intervals. Just depositing the money into your brokerage account doesn't count as DCA, strictly speaking. The interval can be whatever you want it to be as long as it is regular.
Out in the real world, many would say that just investing at different price points would be DCA. Reinvesting dividends is also considered DCA.
I wouldn't be concerned about fractional shares. If you only have $500 to invest and the stock is priced at $51.23, then you're only going to be able to buy 9 shares (fractional shares do not trade on the exchanges, it's a book entry at the brokerage). At the next interval, the price could be down to $44.83, then you'll be able to buy 11 shares. Over time, the average price per share should be lower than if you bought it all at once.
You can get fractional shares at Loyal3 and also with most brokerages that allow you to reinvest dividends because the brokerage aggregates the money from all accounts for that security, buys as many shares as they can and then divides it proportionally.
Benjamen's advice about minimizing transaction costs is good but I see no reason to limit it to 0.5%. If you're only able to save $50/month, I have no problem with buying at the $500 level (a 2% transaction cost) at the 10 month point. My rule of thumb is to have the commission covered by the dividends you'll receive from those shares on the first two dividend payments at most. If you're truly a long-term investor, the initial transaction fee will be minimal compared to the dividends you'll receive over the lifetime of your investment.
Dollar cost averaging (DCA) is investing a certain amount of money at regular intervals. Just depositing the money into your brokerage account doesn't count as DCA, strictly speaking. The interval can be whatever you want it to be as long as it is regular.
Out in the real world, many would say that just investing at different price points would be DCA. Reinvesting dividends is also considered DCA.
I wouldn't be concerned about fractional shares. If you only have $500 to invest and the stock is priced at $51.23, then you're only going to be able to buy 9 shares (fractional shares do not trade on the exchanges, it's a book entry at the brokerage). At the next interval, the price could be down to $44.83, then you'll be able to buy 11 shares. Over time, the average price per share should be lower than if you bought it all at once.
You can get fractional shares at Loyal3 and also with most brokerages that allow you to reinvest dividends because the brokerage aggregates the money from all accounts for that security, buys as many shares as they can and then divides it proportionally.
Benjamen's advice about minimizing transaction costs is good but I see no reason to limit it to 0.5%. If you're only able to save $50/month, I have no problem with buying at the $500 level (a 2% transaction cost) at the 10 month point. My rule of thumb is to have the commission covered by the dividends you'll receive from those shares on the first two dividend payments at most. If you're truly a long-term investor, the initial transaction fee will be minimal compared to the dividends you'll receive over the lifetime of your investment.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan