Smart, informed people face a unique risk in their investments: getting too “clever” for their own good. 

All too often, they succumb to the temptation of trying to time the market, pick individual stocks, or ride the wave of the cryptocurrency du jour. And sometimes it even works—which makes it even harder to avoid next time. 

Every time I’ve gotten cute or clever or smug about an investment strategy, it’s come back to bite me. I would like to think I’ve finally eaten enough humble pie to learn my lesson. 

So, how do I invest today? Boringly, with wide diversification and small, regular investments like clockwork. 

What Is Dollar-Cost Averaging?

Dollar-cost averaging (or DCA for money nerds like me) is the practice of making regular investments in the same broad basket of investments. 

Investors most commonly practice DCA with passively managed index funds. For example, they may invest $300 each week in SPY, an index fund that mimics the S&P 500. 

The market rises, the market falls, the market throws temper tantrums. You just keep investing through it all, week in and week out. 

In the short term, you might lose money if the market dips. But over the long term, you’ll simply earn the average return for that index or sector or whatever you’re investing in. For instance, the S&P 500 has achieved an average annual return of 12.11% over the last 30 years. 

Robo-advisors make this particularly easy. I use Charles Schwab’s free robo-advisor, which I set to withdraw money from my checking account every week. It invests the money based on my investment profile settings, spreading money among stocks in all sectors, market caps, and regions of the globe. It even rebalances my account periodically and harvests tax losses. 

A human financial advisor could do this for you, too, but they don’t work for free the way some robo-advisors do. 

Why Smart Investors Practice Dollar-Cost Averaging

To begin with, dollar-cost averaging ensures that you earn the long-term average return rather than underperforming the market by investing at a market peak or selling at a market low. 

I know, I know. You think you’re smarter than everyone else and that you can time the market. So does everyone—and they get burned because of it. As I documented a few weeks ago in the math to becoming a millionaire, the average stock investor dramatically underperforms the market at large. 

Dollar-cost averaging also prevents you from trying to get clever by picking individual stocks. You just invest in a broad mix of ETFs to diversify your portfolio across the entire market—or at least a huge swath of it. 

Even the smartest, best-informed stock investors are wrong more often than they’re right. It’s why actively managed mutual funds usually underperform the broader market. If these high-paid professionals can’t time the market or pick stocks, you certainly can’t. Dollar-cost averaging saves you from yourself and your bloated ego. 

Best of all, dollar-cost averaging is both simple and easy. I spent five minutes setting up my robo-advisor account many years ago. Today, I don’t have to worry about my stock investments at all; they just run on autopilot. In a word, it makes my stock investments completely passive. 

How to Practice Dollar-Cost Averaging With Real Estate

Now that I’ve beaten that point to death, it raises a question for us as real estate investors: How can you possibly dollar-cost average real estate investments?

After all, real estate is expensive. Whether you invest in rental properties or passive real estate syndications, each investment requires tens of thousands of dollars. That makes it hard to invest small amounts steadily each month. 

Consider these options to dollar-cost average your real estate investments, month in and month out.

Public REITs

Some investors love public REITs. I’m not one of them because they share far too much correlation with the stock market, which largely defeats the purpose of diversifying away from stocks. 

But if you like publicly-traded REITs, they offer one of the easiest ways to dollar-cost average your real estate investments. Many REITs trade at $10 to $30 per share, so you can invest in shares every single week if you like. 

Private REITs

Some real estate crowdfunding platforms offer private real estate investment trusts. They still pay out 90%-plus of their profits in dividends and often own many properties across the country. They don’t offer the same liquidity as public REITs, but they don’t have the same volatility either. 

For a reputable example, check out Fundrise, which allows you to invest with as low as $10, making it easy to invest every week or month. I’ve invested personally in Fundrise, and while it’s had a bad 2023, that’s what markets do: Sometimes they go down. 

Property-secured loans

Alternatively, you can invest small amounts in loans secured by real property. 

My favorite two platforms for this type of investment are Groundfloor and Concreit. While Groundfloor has a minimum initial account balance of $1,000, you can invest $10 apiece in individual loans. 

Every week, my Groundfloor account invests automatically in new loans as they become available. I’ve earned an average long-term return of 9% on these investments, and Groundfloor also offers notes currently paying 6.5% to 10.25% interest. 

Concreit works differently, offering a pooled fund that pays 6.5% interest in weekly dividends. You can invest as little as $1 and withdraw your funds at any time. 

Again, these simply offer one more way to dollar-cost average real estate investments. But I have thousands of my own dollars invested in both. 

Fractional ownership in SFRs

Several platforms have popped up over the last few years that let you invest in fractional shares of single-family rental properties. 

My two favorites are Arrived and Ark7. They let you invest between $20 to $100 per share in rental properties, and both offer short-term rentals in addition to classic long-term rentals. 

As a fractional owner, you get both rental cash flow and your share of the profits on sale. The tax benefits carry over to you as well. 

And yes, I’ve invested personally in properties on both of these platforms as well. I particularly like that Ark7 features a secondary market for selling shares at any time after the initial one-year holding period. 

Fractional investing in syndications

Most syndications require a minimum investment of $50,000 to $100,000, which makes them impractical for dollar-cost averaging. That is unless you invest as a member of a real estate investment club, where you all go in on these together. 

I know two investment clubs that operate this way, and they each work differently. One is my own company, SparkRental’s Co-Investing Club, where non-accredited investors can invest $5,000 apiece in deals vetted together by the club each month. The other is Left Field Investors, which is more geared toward accredited investors investing $10,000 to $50,000 per deal. 

Don’t get me wrong: $5,000 isn’t chump change, and not everyone can invest that much each month. But even if you invest in deals every two or three months, it still offers a way to invest relatively small amounts on a regular basis while targeting the high (15%-plus) returns, cash flow, and tax benefits of passive real estate syndications. 

The upshot? I own a fractional interest in thousands of units across dozens of cities, and the total I’ve invested is less than some people invest in a single property. 

Boring Performs Better

Sure, it’s fun to brag at cocktail parties that you timed the market perfectly or picked the perfect property or stock investment and beat the market. You get to pat yourself on the back and feel clever—that one time out of five that it actually works out that way. In most cases, you’ll just underperform the market at large. 

Aim to be wise rather than clever in your investments. Invest slowly and steadily in stocks and real estate, with small amounts every single week or month rather than occasional large chunks. 

This is because investing shouldn’t be “fun” or a hobby unless you’re an active investor who loves renovating properties yourself. Investing should be boring. It should happen in the background, freeing you to enjoy your actual hobbies. 

Nowadays, I only invest small amounts in diverse passive investments, exactly as I’ve outlined. And my returns have dramatically improved since I started investing this way. 

G. Brian Davis Bigger Pockets

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