E*TRADE Dollar Cost Averaging (Automatic Investing) in 2024

Does E*TRADE offer dollar-cost averaging (DCA) for stocks, ETFs and mutual funds? Enrolling in E*TRADE automatic investing plan.

Dollar-Cost Averaging with E*TRADE

Timing the market is difficult for professional and amateur investors alike. This is part of the reason for the widespread popularity of automatic investing plans (AIP), which take advantage of the benefits of dollar cost averaging. Many brokers offer their own automatic investing options, but this article will focus specifically on the AIP offered through E*TRADE.

What is Dollar Cost Averaging?

Dollar cost averaging is when you slowly accumulate shares to build a position in a fund or stock over time by placing many small purchases of equal dollar amounts over some recurring frequency. For example, instead of buying $12,000 of stock XYZ at once today you might decide to buy $1,000 worth every month for the next year. In both scenarios, you end up with the same position after one year, but in the first example your cost is simply the price you paid in the single purchase. In the second example, your cost is the average of the prices you received in each of your transactions you made over the past 12 months.

The Benefits of Dollar Cost Averaging

The benefits of dollar cost averaging are mainly that you eliminate the risk that you could be buying at or near a top, which is the primary risk of buying your whole position at once. With dollar cost averaging it’s possible, and even likely, that at least one of your purchases will be near a top, but your average cost should be more reflective of the security’s average price over your investment horizon since you’ve spread out your investment into multiple small, recurring purchases.

E*TRADE’s Automatic Investment Plan

E*TRADE’s AIP is a form of dollar cost averaging, where it allows you to setup recurring purchases (you can specify a frequency of weekly, bi-weekly, monthly, quarterly, semi-annual, or annual) for a fixed dollar amount of no-load, no-transaction fee mutual funds. We should note that you must have already initiated a position in any mutual fund for which you would like to setup an AIP, and many of the mutual funds on E*TRADE have minimum purchase requirements in excess of $100.

E*TRADE and Competitors

How to Enroll

Setting up an AIP with E*TRADE is free. All you need to do is give them a call at 1-800-387-2331 and specify which mutual funds you want to include in your AIP and for what frequency you want the purchases to be. Just remember that you must have already initiated a position in the mutual funds for which you want to setup recurring purchases. E*TRADE allows up to ten AIPs per customer, and you can trade up to 50 mutual funds within each AIP.

How to Fund the Plan

If you setup an AIP where you are buying mutual funds every week, month, year, etc., you’re probably going to want to also setup corresponding recurring deposits to your E*TRADE account. E*TRADE makes this easy as well by allowing the frequency of your recurring deposits to match the frequency you chose for your AIP. All of E*TRADE’s AIP purchases are currently made on Tuesdays, so you should keep this in mind when setting up your recurring wire transfers.

Can I Buy Stocks and ETFs with the Plan?

Unfortunately, only no-load and no-transaction fee mutual funds are eligible for enrollment in E*TRADE’s AIP. This is slightly inferior to TD Ameritrade’s AIP, which includes all of the mutual funds offered on their platform. Neither broker, however, allows you to setup an AIP for an individual stock or ETF.

How to Change or Cancel my Enrollment

You can cancel or adjust the terms of your E*TRADE AIP whenever you’d like. Just remember that E*TRADE will charge a short-term trading fee of $49.99 for any no-load, no-transaction mutual fund that is sold within less than 90 days from the purchase date.

E*TRADE Automatic Purchases Conclusion

If you already have an E*TRADE account and are looking to slowly build a diversified portfolio of mutual funds then we recommend you take advantage of their AIP. If you haven’t yet settled on a broker yet and know that a good AIP is important for your portfolio, we’d recommend considering TD Ameritrade’s plan over E*TRADE’s simply because their plan includes a wider variety of mutual funds.

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