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Home > Your Goals > I'm Saving for Retirement > The hidden benefit of automatic investments

The hidden benefit of an
automatic investing program


What's the biggest obstacle to investing more for retirement? Many investors say their intentions are good, but they lack the discipline to stay with a plan. After all, it's hard to find extra money after paying the bills. And with a busy schedule, it's easy to forget.

There is a way around these mental obstacles — a strategy that makes good sense because it encourages discipline, eliminates guesswork and is easy to follow. It's called dollar cost averaging. Here's how it works:

  1. Set aside money to invest

    Set aside a fixed amount of money to invest in the same mutual fund (or combination of funds) at regular intervals — through payroll deduction or when you pay your monthly bills.

    Dollar cost averaging is one of the principles behind your workplace retirement plan. But you can also put it to work with your regular taxable investments or with an IRA.

    The power of discipline: Dollar cost averaging

    $100 invested on first
    of every month         		Share price Shares purchased Investment Total
    January $25 4 $100
    February $20 5 $100
    March $22.50 4.5 $100
    April $22.50 4.5 $100
    May $25 4 $100
    June $30 3.3 $100
    Average share price $24.16 25.3 $611.25
    Compare these purchases to a
    $600 lump sum investment    		 $25 24 $600

    You bought more shares when the price was lower and fewer shares when the price was higher. As a result, your average price per share was lower than if you had invested the total amount in a lump sum at the beginning of the period.

    Of course, dollar cost averaging can't guarantee a profit or protect you from a loss in a declining market. And, you should consider your ability to continue to purchase shares. But if you are seeking a way to establish investing discipline, dollar cost averaging may be a sensible strategy for you.

  2. Choose an automatic plan.

    To ensure that you discipline yourself to keep your dollar cost averaging plan on track, choose an automatic investing plan that deducts your investment from your checking or saving account and automatically transfers it to your investment account. There are no checks to write, no phone calls to remember. An automatic investment plan makes dollar cost averaging simple, effortless—and effective. You can change or cancel your plan at any time.

    An Automatic Investment Plan does not assure a profit and does not protect against a loss in a declining market.
With dollar cost averaging, it's easy to build investing into your monthly budget. With an automatic plan, you'll never forget to make your investments so you'll keep your goals on track.




AARP Financial Inc. does not provide tax advice. Please consult a tax advisor for information pertaining to your particular situation.

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, or legal, tax or investment advice, or a legal opinion. Individuals should contact their own professional tax or investment advisors or other professionals to help answer questions about specific situations or needs prior to taking any action plan based on this information.

The Financial Advisors are investment adviser representatives of AARP Financial Inc., an investment adviser.

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While AARP endorses the services provided by AARP Financial Inc., AARP does not offer financial products or services itself and cannot recommend that you or any specific individual should purchase any particular product or service. AARP Financial Inc. is an investment adviser and a subsidiary of AARP.