What is Dollar-Cost Averaging?
Dollar-cost averaging (DCA) means investing a fixed amount of money at regular intervals, regardless of the stock price. This could be weekly, monthly, or with each paycheck.
How It Works
- When prices are high, your fixed amount buys fewer shares
- When prices are low, your fixed amount buys more shares
- Over time, you average out your cost per share
Benefits of DCA
- Removes emotion - No trying to time the market
- Builds discipline - Consistent investing becomes habit
- Reduces regret - No worrying about buying at the wrong time
- Easy to automate - Set up automatic investments
DCA vs Lump Sum
Studies show lump sum investing outperforms DCA about two-thirds of the time because markets trend upward. However, DCA provides psychological comfort and is better than not investing at all.
Implementing DCA
Set up automatic transfers from your bank to your brokerage. Many brokers offer automatic investment plans that buy fractional shares on a schedule.