Contribution Strategy

Why automation works

Automatic contributions happen when markets are rising and when they are falling, which is precisely when a manual investor is most tempted to stop.

It also removes the recurring decision of when, which is the decision most likely to be made emotionally.

Reviewing the amount

Revisit the contribution amount when income changes rather than when markets move. Increasing contributions alongside income is one of the most effective levers available.

Dollar-cost averaging, worked through

Two different situations share the name. Investing part of each paycheck as it arrives is simply investing money when you have it. Dollar-cost averaging as a choice means you already hold a lump sum and deliberately spread it over several dates. Only the second involves a decision to keep money out of the market for longer.

Hypothetical, $900 spread as $300 a month for three months, no fees:

• Falling path, $30 → $20 → $25: buys 10 + 15 + 12 = 37 shares. Average cost $900 ÷ 37 ≈ $24.32. Worth 37 × $25 = $925 at the end. Investing all $900 at $30 on day one would have bought 30 shares, worth $750. Spreading did better here.
• Rising path, $20 → $25 → $30: buys 15 + 12 + 10 = 37 shares. Average cost ≈ $24.32. Worth 37 × $30 = $1,110. All $900 at $20 on day one would have bought 45 shares, worth $1,350. Investing at once did better here.
• Falling path that keeps falling, $30 → $20 → $15: 10 + 15 + 20 = 45 shares, worth 45 × $15 = $675 — a loss of $225 despite regular buying.

What the example shows

A fixed amount buys more shares when prices are low, so the average cost is below the simple average price. That is arithmetic, not a gain. Regular purchases do not guarantee a profit and do not protect against loss.

Spreading out a lump sum keeps part of it in cash for longer. When prices rise over that window it tends to end lower; when they fall it tends to end higher. Nobody knows which in advance. Its main benefit is behavioural: less regret if prices fall right after investing.