Dollar-cost averaging
DCA · Averaging in
In short
#FinanceDollar-cost averaging means investing a fixed amount at regular intervals regardless of price, so you buy more units when prices are low and fewer when they are high.
Why it matters
DCA is a decision rule, not a return strategy. Its real benefit is behavioural: it removes the need to pick a moment, which is the point at which most people act on fear. Historically, investing a lump sum has beaten averaging in more often than not, because markets rise more often than they fall. DCA trades a little expected return for a lot less regret.
Example
You invest $500 on the first of every month. Over a volatile year your average cost per unit lands below the average price across those twelve months, because the fixed amount bought more units at the low prices.
Frequently asked
Is DCA better than investing all at once?
Usually not for total return, since markets trend up and staying invested longer wins on average. DCA reduces the impact of being unlucky with timing, which is why it is a risk and behaviour tool rather than a return tool.
Is averaging down the same as DCA?
No, and confusing them is expensive. DCA is a fixed schedule set in advance. Averaging down is adding to a losing position because it fell, which increases exposure to a thesis the market is currently disagreeing with.