Dollar cost averaging with variable frequency

Question

I have started to invest in Tesla shares, but they are expensive given my budget. I have a budget of about $1000 a month. I can't use monthly dollar cost averaging because I would either buy 1 or 2 full stocks every month. So I thought of coming up with a system that divides the monthly $1000 into daily increments (roughly $33 every day) and starts adding up in a sum. When the sum allows me to buy a Tesla share, alert me to make a purchase of 1 stock. This is similar to dollar cost averaging, but you always buy 1 stock with each purchase and the intervals between purchasing is what is changing, not the number of stocks you buy.

I was wondering - does this strategy have a name so I can look it up and find out more about it? If not, does it sound like a good idea to buy shares more often when they are cheaper and less often when they are more expensive? Especially more expensive stocks.

Answer 1

Adding to a position intermittently is dollar cost averaging. The secondary reason (doing it when you have enough cash to buy one share) isn't an investment strategy. It's a limitation.

It's obviously a better idea to buy more shares when they are less expensive than when they are more costly. Would you prefer one share in February for $900+ or 3 shares in March for $1,050?

Answer 2

Why not look into brokerages that offer fractional share investments? I use M1 Finance, but there are many, many different brokers that offer this service.

I essentially have a "pie" that I set up with all of the stocks I want to buy. So out of $1000 savings a month, let's say I know that I want $200 to go to Microsoft, $200 to go Amazon, $200 to go a REIT, $200 to go Blackrock, and $200 to go to JP Morgan.

The brokerage just buys out $200 worth of each share. If TSLA is trading at $750, and I allocate $200, then the broker will assign me 0.27 TSLA shares that month.

I think this is a very convenient way to dollar cost average on a continuous basis, and, like an index fund that you set up, its a quick way to make sure your money is diversified across a lot of companies.

Answer 3

This is similar to dollar cost averaging, but you always buy 1 stock with each purchase and the intervals between purchasing is what is changing, not the number of stocks you buy.

You are right this is similar to dollar cost averaging. If your goal is to buy shares as quickly as possible, this method may make it possible to squeeze in a extra purchase or two during the year. This method can also be used by investors who are purchasing an ETF that doesn't allow fractional shares.

I find one of the strengths of a 401(k) program is the ability for people to invest in funds and stocks without having to worry about buying a whole number of shares or a fund has a minimum. But when investing outside of a 401(k) they may have to use a different method than $x per month, they may have to vary the timing instead of the dollar amount.