How frequently should I buy shares?

So, you've decided you would like to make a start on your personal investing journey. You've set aside some money to invest in the share market, done your research, and identified a few shares that you would like to buy.

One question you might naturally wonder is how frequently you should add more stocks to your portfolio.

How often should I be investing?

Should you invest all your money in one go and take a buy-and-hold approach? Should you keep your money in reserve and try to buy the dips when they occur in the market? Or is it better to invest smaller sums of money to buy stocks regularly over a longer period of time, a strategy referred to as dollar-cost averaging (DCA).

In this article, we will look at these different investing styles and help you determine which is right for you.

What is dollar cost averaging (DCA)?

Dollar-cost averaging (DCA) is an investment strategy where you divide the total amount you want to invest into smaller, equal portions and deploy them at regular intervals over time, regardless of what the market is doing. Rather than investing a lump sum all at once, you might invest a fixed amount weekly, fortnightly, or monthly.

The core idea is simple: by buying at regular intervals, you will sometimes purchase shares at higher prices and sometimes at lower prices. Over time, these purchases average out, smoothing the impact of short-term market volatility on your overall entry price. This is where the "averaging" in dollar-cost averaging comes from.

For example, if you plan to invest $6,000 over six months, a DCA approach would have you investing $1,000 each month rather than putting the full $6,000 in on day one. In months when share prices are lower, your $1,000 buys more shares; in months when prices are higher, it buys fewer. The result is a blended average cost per share over time.

DCA is particularly well-suited to long-term investors who want to build wealth steadily without needing to predict market movements. It is a disciplined, systematic approach that works best when maintained consistently over an extended period.

Time in the market is better than timing the market

New investors tend to put too much focus on trying to time the market. They often feel pressure to wait until the perfect buying opportunity presents itself (when a company's shares are trading at their absolute cheapest).

It's an entirely natural inclination — none of us like feeling as though we've overpaid for something. But in reality, timing the market is incredibly difficult — even the best fund managers can't do it regularly!

A DCA approach, on the other hand, eliminates the guesswork involved in timing the market. Instead, it suggests that time in the market is the best and most dependable way to generate long-term, stable returns. 

Investors who follow this investment strategy break up the total amount they would like to invest into smaller chunks. Then, rather than investing their money all in one go, they invest these smaller portions at regular intervals, averaging out their purchase price over time.

This investing method is particularly easy for beginner investors to set up because it doesn't require an in-depth understanding of the market. There's no need to keep up to date with all the latest financial news — you can simply set and forget and watch the value of your investment grow over time. 

In fact, time is the key ingredient in a DCA strategy. While it may not guarantee you short-term profits, if you have the discipline to commit to it over the long term, DCA can be a powerful generator of wealth.  

DCA versus buying the dip

When it comes to building wealth through shares, two of the most common approaches are dollar-cost averaging (DCA) and buying the dip. On the surface they might seem similar, as both involve purchasing shares over time, but they are driven by very different philosophies. DCA is about consistency and discipline, while buying the dip is about timing and prediction.

For most everyday investors, research suggests that DCA tends to come out ahead over the long run. Not because it always finds the best price, but because it keeps your money working continuously. Buying the dip sounds appealing in theory, but in practice it relies on your ability to correctly time the market.

Even experienced fund managers struggle to do this consistently, and the cost of waiting on the sidelines can quietly erode any gains made from buying at a lower price.

But when is a dip actually a slide?

As with any strategy that relies on trying to time the market, buying the dip has the downside that it requires a great deal of skill and investing knowledge (plus a healthy dose of luck) to implement successfully.

You need to be able to correctly identify moments when a share price dip is only temporary and isn't a sign of deeper problems with the company's underlying business. If the dip turns out to be the beginning of a longer-term downtrend, you might risk losing a lot of money!

Research suggests that DCA tends to outperform even the most perfectly executed buy-the-dip strategy. This is due mainly to the fact that, while buying the dip, investors are waiting around for the opportune moments to invest, potentially missing out on months and months of compounded returns. 

For example, if we were in a long-term bull market, there may be very few genuine dips in share prices. But this wouldn't stop DCA investors, who would continue to regularly accumulate shares regardless of what the market was doing. 

And chances are they would come out on top because the money they invested earlier in the bull run would have already been compounding over time (instead of sitting in a bank account earning a pittance in interest). In short, if you invest regularly rather than sporadically, you are putting your money to work faster.

Taking the emotion out of investing

The other benefit to dollar-cost averaging is that it takes a lot of the emotion out of investing. Investors who focus too heavily on timing the market tend to take it personally when their timing is off.

Imagine you had waited for what you thought was the perfect buying opportunity, only to see your investment decline a further 10% immediately after you finally decided to buy. You might start to doubt your investing skills and abilities, which can then cause you to make bad, panicked investment decisions.

However, because DCA doesn't hinge on your ability to perfectly time the market, you don't need to be so concerned about short-term movements in share prices. The whole idea behind DCA is that these short-term price fluctuations will average out over time, just as long as you keep making your regular investments.

So, with a DCA strategy, you can stop losing sleep worrying about daily swings in your share portfolio — it will all even itself out in the end!

Don't pay excessive brokerage fees

The main thing to be cautious of when implementing a DCA strategy is brokerage fees. These are the fees a broker will typically charge you for processing a transaction. The amount of the fee can vary quite substantially between different brokers and may also increase with the amount invested.

For example, Commsec charges a $29.95 brokerage fee for standard online trades through its platform, which increases to 0.31% for individual trades totalling $10,000 or more. As you can imagine, if you're paying almost $30 a pop every time you invest, these amounts can add up quite quickly and start eating into your overall returns. This is particularly true if you are making many small, regular investments.

Let's say you wanted to invest $500 a month for the next six months. Each time you invest, you pay $29.95 in brokerage fees. As shown in the table below, these fees alone add up to $179.70 over the course of six months — or almost 6% of the total amount invested. This essentially means that, just for your portfolio to end up back in the black, it needs to increase by at least 6.37% (from $2,820.30 back up to $3,000).

There are now plenty of different online brokers to choose from, some of which charge much lower brokerage fees. However, the principle still holds — always be wary of the amount you are paying in fees and keep this in mind when deciding how much and how frequently you would like to invest.

Changing the frequency

Consider this. If we invested the same total amount as in our previous example, but instead of investing $500 every month, we invested $1,000 every two months, this would have a substantial impact on the amount we pay in fees.

In the above table, we have still invested $3,000, but the amount we've paid in fees has halved to $89.95. Similarly, the percentage of our total investment consumed by fees has halved to 2.995%, and our portfolio only needs to increase by 3.09% to break even. 

By changing our investment frequency, we have significantly reduced the amount of cash we've paid out as fees and the burden they've placed on our overall portfolio. We have still invested the same total amount of money, but we've just conducted fewer transactions.

It's important to keep these considerations in mind when deciding how you would like to invest.

It can be difficult to strike the right balance between your investment frequency, investment amount, and fees paid when you are also trying to diversify your investments, but it is a key step in setting up a successful, long-term investment strategy. 

If you want to follow a DCA strategy but are struggling to make regular investments while also diversifying, perhaps consider whether some exchange-traded funds (ETFs) may be a better choice for your portfolio than investing in individual companies, as ETFs provide instant diversification in a single transaction.

Find the right balance for your investment frequency

If you choose to follow a DCA approach, it is important to set up an investment frequency that best suits your own personal circumstances. As we've just demonstrated, investment frequency can also impact the amount of cash lost to fees, so it's important to strike the right balance. 

Ideally, you would want to be investing reasonably frequently (perhaps once a month) in a diversified portfolio but without losing excessive amounts to fees. If striking the right balance feels tough, some online brokers and micro-investing apps charge much lower brokerage fees and can provide alternative ways to invest small amounts at a lower cost while still diversifying.

Foolish takeaway

Always be honest with yourself about how much you can afford to invest regularly. Adopting a DCA investment approach requires patience and discipline as wealth accumulates over time. You won't get the full benefit of this approach if you constantly have to withdraw funds from your share portfolio to cover your daily expenses.

Therefore, always choose a realistic amount of money that fits within your personal budget — while still remembering to keep some spare cash set aside in your emergency fund.