Dollar-cost averaging
Investing a fixed amount at regular intervals regardless of price, so that more units are bought when prices are low and fewer when high.
Also called: pound-cost averaging · euro-cost averaging · DCA
With dollar-cost averaging, called pound-cost averaging in the UK, you invest the same sum on a regular schedule, say monthly, into the same investment. Because the amount is fixed, it buys more shares when the price is low and fewer when it is high. As a result, the average price you pay per share is at or below the simple average of the prices on your purchase dates. For most people who invest from their salary, this happens naturally: they invest as the money arrives.
The approach removes the pressure of timing the market and reduces the regret of investing everything just before a fall. But when you already have a lump sum, spreading it out is not a free lunch. Because markets have tended to rise over time, historical studies have found that investing a lump sum at once has usually ended up ahead of feeding it in over months, since the money waiting on the sidelines earns less. The lower average price does not mean dollar-cost averaging earns more; it is a way of managing risk and emotion.
General education, not personal financial, tax or legal advice.
Guides that go deeper
Where dollar-cost averaging comes up in practice.