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Investing strategies

What is dollar-based investing?

7 minute read   •   March 28, 2025
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Dollar-based investing, also known as dollar-based trading, is a feature that lets you invest in a security based on a dollar amount of your choosing, instead of having to place an order for a number of shares. This means you can purchase fractions of shares, rather than having to calculate what you can afford to buy based on the price of a full share.

At Vanguard, you can use dollar-based trading to buy mutual funds or Vanguard ETFs®. It's particularly useful for investors who want to diversify their portfolio, even without enough cash to buy whole shares of higher-priced investments.

With dollar-based trading, you can invest smaller amounts of money and still gain exposure to a broad range of investments. And if you need to withdraw your money in the future, you can redeem a specific dollar amount or a set number of shares.1

Dollar-based trading not only helps to simplify the investing process; it also allows you to be more efficient with the money you want to invest. That's because you can put every available dollar to work, rather than waiting to purchase a full share of a particular investment. 

How does dollar-based investing work?

Using Vanguard ETFs as an example, the following demonstrates how you can start investing with as little as $1 through dollar-based trading. Imagine the cost of one full share in an ETF was $50. With $1 you'd be buying 1/50 of a share. With $25, you could buy 1/2 of a share, and so on.

This helps to reduce the entry barrier and wait time for someone starting out with less cash. You can go ahead and invest in a fractional share and give your investment the opportunity to grow—no matter what amount you're able to contribute.

You can also invest in mutual funds using dollar-based trading. But it's important to note that many mutual funds have an initial investment minimum, such as $1,000 or $50,000. So, the amount you'll need to start investing in a mutual fund might be higher than with an ETF. (You can find a mutual fund's investment minimum in its prospectus.)

This approach is convenient and allows you to invest a fixed amount regularly, which is a strategy known as dollar-cost averaging.

Dollar cost averaging

A way to invest by buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. You seek to purchase more shares when prices are low and fewer shares when prices rise, to avoid the risk of investing a lump-sum amount when prices are at their peak.

Benefits and considerations of dollar-based investing

Invest by dollar amount

Dollar-based trading lets you think in dollars, not in shares. For instance, you can buy a Vanguard ETF® for as little as $1, regardless of the ETF's share price. And you don't have to leave a balance in your settlement fund unless you want to.

Withdraw exactly what you need

Sell a specific dollar amount from your portfolio and withdraw exactly what you need—nothing more, nothing less.

Rebalance by dollar amount

Rebalance your portfolio by dollar amount without having to convert shares to dollars (or vice versa). For example, you can sell $100 of your stock ETF and purchase $100 of a bond ETF.

Build a diversified portfolio

Dollar-based trading in mutual funds or Vanguard ETFs helps you build a diversified portfolio in just a few steps. That's because ETFs and mutual funds both represent professionally managed collections (or "baskets") of individual stocks or bonds. Both may spread your investment across a broad range of asset classes, sectors, and geographies to bring you built-in diversification—which aims to help lower your chances of losing money on your investments.

Vanguard offers a wide selection of mutual funds and ETFs, including index funds and actively managed funds. You can build a fully diversified portfolio that gives you exposure to nearly all aspects of the U.S. and international stock and bond markets, helping to reduce your overall investment risk. And there are no trading commissions when you buy and sell most products through Vanguard online, including Vanguard mutual funds and ETFs.2

Diversification

The strategy of investing in different asset classes and among the securities of many issuers in an attempt to lower overall investment risk.

FAQs

You can buy, sell, and rebalance mutual funds or Vanguard ETFs using dollar-based investing in your Vanguard account. However, there are certain limitations when transferring assets to another firm while keeping some of your holdings at Vanguard.

If you hold shares, including fractional shares, of an ETF or mutual fund in a taxable account, then you may have a tax liability based on the fund's activities. If a fund pays you dividends or if you decide to sell shares, you may owe taxes on your earnings or capital gains.

When the securities within an ETF or mutual fund pay dividends, the fund collects these dividends and distributes them to investors, including those with fractional shares, in proportion to their holding. 

Yes, when the securities within an ETF or mutual fund pay dividends, the fund collects these dividends and distributes them to investors, including those with fractional shares, in proportion to their holding. These dividends are typically paid out on a quarterly basis and can be reinvested or taken as cash, depending on your preference.

When you choose to have dividends automatically reinvested, you're using that money to purchase new shares of the fund, so you can keep your earnings invested.

For many investors, dollar-based trading is a practical and effective approach. It allows you to choose a dollar amount you're comfortable with and put that money into an investment vehicle of your choice, like an ETF or mutual fund, giving it the chance for growth over time.

Dollar-based trading also reduces what is sometimes referred to as "cash drag" on your portfolio, since you don't have to hold your available money in cash, waiting until you've saved enough to buy a full share.

And dollar-based investing helps make investing more accessible. For example, with Vanguard ETFs, you only need $1 to start.

Choosing the right product that aligns with your individual risk tolerance and financial goals is important. 

As with any investment, buying and selling on a dollar basis is subject to risk, including the possible loss of the money you invest. 

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1If you buy or sell a specific dollar amount of a Vanguard ETF, the order type defaults to "market order" and the duration defaults to "day."

2Trading limits, fund expenses, and minimum investments may apply. See the Vanguard Brokerage Services® commission and fee schedules for limits.


All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.

For more information about Vanguard funds or Vanguard ETFs, obtain a mutual fund or an ETF prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.