Online Brokers Offering Dollar Cost Averaging Investment Plans

The use of dollar cost averaging for scaling into investments has been around for a long time. The basic premise is that an investor can minimize the impact of volatility and price swings by purchasing a security or mutual fund at specific intervals, for pre-determined amounts of money or numbers of shares. For example, buying 100 shares or $5000 worth of an ETF every month over a six-month period, regardless of share price. This may be a good strategy for a new investor with no experience to time their trades for the optimal price.

Large Brokers Offering Dollar Cost Averaging

In response to this, several online brokers offer this service to their customers, executing the plan and the trades automatically according to customer instructions. All of the largest online brokers do offer it, but each has different ways that they manage and charge for the service. All offer it for mutual funds, but Fidelity does not offer it for stocks or ETFs.

TD Ameritrade and Etrade have requirements of a time frame the investment must be held, 180 and 90 days respectively. Early sales will incur a commission of $49.99 at both brokers. One great feature of dollar cost averaging is that most brokers only charge a commission for the first purchase in the plan. All the largest brokers except for Schwab and Fidelity have commission-free ETF offers, which is attractive for investors who don’t prefer mutual funds.

Other Offers From Online Brokers

There is a large variety of ways this kind of plan is offered among the rest of the online brokers. Some, such as Scottrade, will charge an initial commission $7 for an ETF, with three free subsequent trades included. After that they charge $2 per trade. Merril Lynch is a flat $6.95 per trade on ETFs, and $19.95 on mutual funds. Interactive Brokers charges $2 for each additional investment after the initial $14.95 mutual fund commission.

It does seem that the commission structure used by most brokers recognizes that the dollar cost averaging plan is one that in essence ‘spreads out’ what would have been one lump sum purchase. Taking that into account, they don’t charge the full commission on each addition to the original position. A few such as Vanguard, Interactive Brokers and Schwab do have a $100 minimum for subsequent investments. There are many good choices for investors who would like to purchase investments in this way, and the fees charged seem to be fair for the service.