Optimal Finance Daily - Financial Independence and Money Advice 3350: Dollar Cost Averaging by Ramit Sethi of I Will Teach You To Be Rich on Smart and Steady Investing
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Nov 12, 2025 Ramit Sethi breaks down dollar-cost averaging as a smart, consistent investment strategy that protects against market volatility. He contrasts it with lump-sum investing, which can yield higher returns but comes with emotional risks. Listeners learn to build an index fund portfolio from scratch, even on a tight budget, with a practical guide to monthly contributions. Sethi emphasizes the importance of spending less than you earn and stresses the need for annual rebalancing in DIY index fund portfolios.
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Invest Slowly To Avoid Timing The Market
- Dollar cost averaging means investing regular amounts over time instead of investing a lump sum at once.
- It hedges against price drops and avoids trying to time the market by using time as an advantage.
Automate Regular Contributions
- Set up automatic transfers from checking to investment accounts each month to automate investing.
- Use automatic investing so funds waive transaction fees and you invest consistently without guessing market moves.
Lump Sum Often Wins—Emotion Changes The Choice
- Vanguard found lump-sum investing beats dollar cost averaging about two-thirds of the time due to markets tending to rise.
- However, lump-sum carries emotional risk and performs worse if markets decline short-term.
