Monday Monday: How dollar cost averaging can create automatic millionaires

Becoming a millionaire might seem like a lofty goal, but CPA and financial expert Paul Hood says it can be done with patience and consistency — and it doesn’t require timing the market or a six-figure income.

“It’s a kind of a sexy statement,” Hood said. “An automatic millionaire plan.”

He says the concept behind the automatic millionaire plan is dollar cost averaging, a strategy that works particularly well in retirement accounts like 401(k)s. It involves investing a set amount of money at regular intervals, regardless of market highs or lows.

Teachers Leading a Financial Trend

“I actually read not too long ago that the fastest growing group of millionaires today are teachers,” Hood said. “And it’s this principle. It’s the principle of dollar cost averaging. And it’s the reason why 401(k)s work so well.”

The idea is that by contributing steadily, investors buy more shares when prices are low and fewer when prices are high, which lowers the average cost of the investment over time.

"Set It and Forget It" Works Best Over Time

Hood said that timing the market isn’t the goal... long-term consistency is.

“If I buy in every month and the market’s high, yay. If the market’s low, double yay, because you’re buying it on sale,” he said. “So for instance, somebody puts 100 bucks in, and next week it fell in half. So now it’s only worth $50. The really ugly thing is anything that goes from 100 to 50, it’s down 50%. But 50 to 100, it has to go up 100% just to break even. So you put another $100 in, and this time you buy two shares. So your average cost base is only $65, $67.”

This kind of investing, he says, doesn’t require constant attention.

“It’s that ‘set it and forget it,’” Hood said. “Don’t try to time the market. And it’s all about how long you can do it.”

A Simple Wealth-Building Philosophy

Hood says financial peace of mind can be boiled down to a few simple priorities.

“I try to teach people to give first, save second, live on what’s rest,” he said. “And predictability is possible if you use that dollar cost average sessions.”

He also encourages a long-term perspective, even when the market takes a dip.