Does Vanguard offer dollar-cost averaging (DCA) for stocks, ETFs and mutual funds? Enrolling in Vanguard automatic investing plan.

Dollar-Cost Averaging with Vanguard

If you have a Vanguard brokerage account and it holds at least some Vanguard mutual funds, you should read this article to see if their automatic investing plan is right for you. Vanguard makes automatic investing and reinvesting in their mutual funds an easy and convenient process that’s also free of charge.

How Does It Work?

Vanguard lets you setup automatic purchases of their mutual funds at a pre-determined frequency of your choice – they currently support weekly, bi-weekly, monthly, and twice a month. You can also specify start and end dates if you would like.

You can have the funds deposited from either an external bank account or from a settlement fund within your Vanguard account. Once the funds are deposited to your brokerage account per your pre-determined schedule, they will automatically be invested in the Vanguard mutual funds you specified and at the custom allocations you requested.

The only real caveat of Vanguard’s automatic investment plan is that you can only use it for Vanguard mutual funds, so if you hold funds from other families, such as T. Rowe Price or Fidelity, those cannot be enrolled in this plan. The good news is that this isn’t a big downside because Vanguard offers such a wide variety of mutual funds that you shouldn’t have a problem finding enough Vanguard funds to create a diversified portfolio.

Automatic Withdrawals

One thing that is neat about Vanguard’s automatic investment plan that sets theirs apart from others is that they also allow you to move money in the opposite direction – out of your brokerage account – by setting up automatic redemptions from your Vanguard mutual funds. You can use the same frequency settings described earlier to schedule regular redemptions from your Vanguard funds and then have the proceeds automatically moved to either an external bank account or another Vanguard account, including a Vanguard IRA account.

Signing Up

In order to sign up for automatic investing, we searched for “How do I set up recurring automatic investments online?” in the search box on the upper right corner of their website. This will direct you to a page with the link “Navigate to the automatic investments plan page”. Clicking this link will open up the online enrollment form for the automatic investing plan. As you can see below, the application will ask you for the bank account from which to withdraw the funds, the amount, frequency, and also how to invest it across your various Vanguard funds.


Vanguard Dollar Cost Averaging


Vanguard Dollar-Cost Averaging

When you invest a fixed dollar amount into a fund or security at regular periodic intervals (as you would be doing with Vanguard’s automatic investing plan) this is called “dollar-cost averaging”. Unless you are an artist with exceptional market-timing skills (spoiler alert: even most professional money managers aren’t this good), dollar-cost averaging is recommended for long-term investing because it spreads out your purchases across a larger time horizon.

By spreading out your purchases, you eliminate the price risk of buying your entire position at a single price. So instead of risking buying your whole position near a market peak, you scale into it over time so that your average cost is a reflection of the mutual fund’s average price over that time frame. Obviously on the flip side, you eliminate the chance of being able to acquire your entire position near a market low.

Comparison

Other brokers, such as Firstrade (Review), also offer automatic investing plans; however Vanguard’s is the only one we know of that also supports automatic withdrawals from your broker account. Firstrade’s automatic investment plan has a lengthier enrollment process where you have to fill out a PDF and submit it electronically along with a recent bank statement or voided check. One aspect of Firstrade’s automatic investment plan that is superior though is that it allows you to use any of the mutual funds on their platform from multiple fund families.

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