Dollar-cost averaging
Also called: DCA
Dollar-cost averaging is investing a fixed dollar amount at regular intervals, whatever the market is doing, so each purchase buys more shares when prices are low and fewer when prices are high.
By Beacon · Updated
How it works
If you contribute to a 401(k) or similar workplace plan from each paycheck, you are probably already doing it: the same amount goes into your chosen investments on a fixed schedule. Because a set dollar amount buys more shares at lower prices, your average cost per share can end up below the simple average of the prices paid. A schedule also takes the question of when to buy out of day-to-day headlines.
Dollar-cost averaging doesn’t guarantee a profit or protect against losses. If prices fall and stay below your average cost, your shares are worth less than you put in, and continuing to buy through a long decline takes steady cash flow. If each purchase carries a commission or fee, many small purchases can also cost more than investing the same money at once.
The schedule decides when money goes in, not what it buys. Regular purchases of a risky or concentrated investment remain risky and concentrated, so the choice of investment, its costs, and when you will need the money matter as much as the routine itself.
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Sources and further reading
Examples are illustrative and focus on U.S. personal finance. This page is educational, not individual financial, investment, tax, or legal advice. Read our editorial approach or report a correction.