2019: Does TD Ameritrade offer dollar-cost averaging (DCA) for stocks, ETFs and mutual funds? Enrolling in TD Ameritrade automatic periodic investing plan.

Dollar-Cost Averaging with TD Ameritrade

Despite what many traders might have you believe, timing the market is something that even professional fund managers often get wrong. Professional and amateur investors alike can mitigate their risk of “buying at the top” with dollar cost averaging (DCA).


What is Dollar Cost Averaging?

Dollar cost averaging is when you gradually buy into an investment in multiple smaller trades over a long period of time instead of buying your whole position at once in order to minimize the risk of buying near a market top.

For example, let’s say you want to put $13,000 into mutual fund XYZ but you’re worried about buying it all at the current price because you’re worried that, with your luck, the market will probably tank as soon as your order is executed. Instead, you decide to buy $250 worth of XYZ every week for a year so that if the market does tank and continues to fall it won’t hurt you as much since your average purchase price will continue to fall as you continue to buy shares into the downtrend.


TD Ameritrade’s Automatic Investment Plan

TD Ameritrade’s automatic investment plan is a form of dollar cost averaging, and it enables you to gradually scale into positions in the 12,000+ mutual funds offered through the TD Ameritrade platform. Once you enroll in the program, you can specify the dollar amount ($50 minimum) and frequency of each future automatic purchase.

For example, you could setup a recurring instruction to buy $100 worth of Calamos Convertible Fund (CCVCX) every month and TD Ameritrade would buy you exactly $100 worth of the mutual fund each month (this is possible because they allow you to buy fractional shares).


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How to Enroll in TD Ameritrade Automatic Investing Plan

The program is free to enroll in, but before you can enroll you must first make an initial purchase in the mutual fund(s), which incurs a $49.99 commission. Every future automatic purchase that you schedule through the program will be commission-free though. You will need to call TD Ameritrade and ask them to send you an enrollment form to fill out and submit. There is no limit to the number of mutual funds you can enroll in the program.


How to Fund the Plan

Obviously if you setup an automatic investing plan where you are buying $X of mutual funds every week, month, year, you’re probably going to want to also setup corresponding recurring deposits to your broker account. TD Ameritrade makes this easy as well, allowing you to schedule recurring deposits at these standard frequencies in addition to more custom ones, such as the third Friday of every month.


Can I Buy Stocks and ETFs with the Plan?

Unfortunately, only mutual funds are eligible for enrollment in this plan. If you wanted to do dollar cost averaging on stocks and ETFs you would have to make these trades manually (and should consider using a free broker for this to avoid paying a commission on each trade). We will note, however, that most dividend-paying stocks on TD Ameritrade’s platform are eligible for automatic reinvestment of dividends.


How to Change or Cancel my Enrollment

You can cancel or modify the terms of your recurring purchases at any time by calling TD Ameritrade.


TD Ameritrade Dollar Cost Averaging Conclusion

If you are planning to build a diversified portfolio of mutual funds in your TD Ameritrade account, the automatic investment plan is highly recommended as it removes the risk associated with buying your entire position at a single price and is a cost-effective way to scale into positions. If you are looking to use dollar cost averaging for individual stocks or ETFs this program won’t help you, and we would recommend implementing it yourself with one of the free brokers to avoid paying a recurring commission.


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