Four ETFs That Can Help you Take Advantage of Dollar-cost Averaging
By Floyd Saunders, The Author of Five Paths To Wealth, Family Financial Freedom and Figuring Out Wall Street.
Some of your biggest questions as you start your investing journey are:
How should I start investing? With a lump sum, or use dollar-cost averaging?
When to make your investments. Should you buy when the market is at all-time high levels? Should you buy only after a market correction, when stocks dip at least 10% from a 52-week high? One popular solution to this dilemma is dollar-cost averaging.
And should I buy Stocks? Bonds? Mutual Funds? Exchange Traded Funds?
Most beginning investors will start by investing a regular amount with each paycheck. Typically that might be with a company retirement plan, like a 401(k). You are taking advantage of a ideal called dollar-cost averaging when you do.
Dollar-cost averaging is investing equal dollar amounts at regular intervals of time. For instance, an investor who wanted to invest $1,200 into an S&P 500 index fund in any given year would simply invest $100 at the beginning of each month.
With this approach investors aren't trying to time the market, but are buying at a range of values at pre-determined intervals (generally once a month).
Dollar-cost averaging doesn't always make sense, but it is a good basic approach if you are just starting out and can only invest a fixed amount out of your budget each month.
· It can be a simple way to invest
· It can eliminate the uncertainty of "am I getting a good price?"
· It takes the emotional factors out of investing
· It prevents market timing, which is generally a losing bet.
· Not everyone has a lump sum of money to invest.
· You may not do as well as investing a lump sum at one time
· A study by Vanguard that compared historical investing strategies showed that an immediate investment strategy was the better result 64% of the time.
You Can Stop Trying to Time The Market
Researchers have found that individual investors, who attempt to time the market, underperform a simple index like the S&P 500.
But Where to Start?
It can be tough to decide where to invest in stocks as it takes time to find the right ones. Bonds have such low returns you know you are not getting much of a return, not much better than a bank savings account. And mutual funds comes with so many different charges and expenses, it can be difficult to sort them all out.
A better approach to start investing is with one of the following Exchanged Traded Funds, that track to the S&P 500 index. Here is four that have every low expense ratios, so more of your money is always invested.
Schwab S&P 500 Index Fund (SWPPX)
The Schwab S&P 500 Index Fund has a strong record dating back to 1997, and has a razor-thin expense ratio of just 0.02 percent. That means every $10,000 invested would cost $2 annually. With it’s super low expense ratio helps this fund earned a Morningstar Analyst Rating of Gold.
Vanguard S&P 500 ETF (VOO)
The Vanguard S&P 500 is one of the largest funds on the market with hundreds of billions in the fund. This ETF began trading in 2010, and has a very low expense ratio of 0.03 percent. That means every $10,000 invested would cost $3 annually. With $101.35 billion of assets under management, the VOO ETF is one of the largest ETFs in the world.
iShares Core S&P 500 ETF (IVV)
This iShares fund is one of the largest ETFs and is sponsored by BlackRock, one of the largest fund companies. Compared to the Vanguard S&P 500 ETF, IVV has generally paid a slightly higher yield over the last 5 years. It has an expense ratio of just 0.03 percent. That means every $10,000 invested would cost $3 annually.
SPDR S&P 500 ETF Trust (SPY)
The SPDR S&P 500 ETF was founded in 1993 making it the granddaddy of ETFs. With hundreds of billions in the fund, it’s among the most popular ETFs. This fund has generated an average three-year return of 13.25% through December 2020, with average annual returns of 13.55% over the past ten years. It has a slightly higher expense ratio of 0.09 percent. That means every $10,000 invested would cost $9 annually.
These are some of the best S&P 500 index funds on the market, offering you a way to own the stocks of the S&P 500 at low cost, while still enjoying the benefits of diversification and lower risk.
You can learn more about investing and managing your money to be more financial secure by reading Five Paths to Wealth.
Other books by Floyd Saunders include Family Financial Freedom and Figuring Out Wall Street.
Book cover design by Ashley Dameron
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