Dollar-Cost Averaging

Personal Finance

Dollar-cost averaging (DCA) is investing a fixed dollar amount on a fixed schedule (typically monthly) regardless of market price. When prices are low, your fixed dollar buys more shares; when high, it buys fewer. Over time, your average cost per share is typically lower than if you'd tried to time the market. DCA's biggest advantage is psychological: it removes the emotional pressure of timing decisions. Your 401(k) is dollar-cost averaging in action — every paycheck buys a fixed dollar amount of your selected funds. Academic studies show lump-sum investing tends to outperform DCA on expected return, but DCA dramatically reduces regret if markets fall.