Financial Term Explorer
Dollar Cost Averaging (DCA)
Investing fixed amounts regularly regardless of price. Reduces timing risk and lowers average cost over time.
π Definition
**Dollar Cost Averaging (DCA)** invests consistent amounts at regular intervals regardless of market conditions. Buying more shares when prices are low and fewer when high naturally averages your cost down.
In Simple Terms
Invest $500 monthly in an ETF. Buy when expensive, buy when cheap. Long-term, prices average out.
Example
Investing $500 monthly in SCHD accumulates $6,000 annually. Consistent buying through crashes lowers average cost.
π‘ Practical Tips
- 1Set up automatic transfers for forced saving.
- 2Don't stop during market crashes.
- 3DCA with dividend ETFs automatically grows your dividend income.
β οΈ Common Mistakes
If you have a lump sum, DCA statistically underperforms immediate investment. Choose based on your situation.
β Frequently Asked Questions
Lump sum or DCA - which is better?βΌ
Statistically lump sum wins, but DCA provides psychological comfort and discipline.