Dollar-Cost Averaging (DCA)
An investment strategy of regularly investing a fixed amount regardless of market price, reducing the impact of volatility over time.
Dollar-cost averaging removes the emotional burden of trying to time the market. By investing the same amount at regular intervals (weekly, monthly), you buy more shares when prices are low and fewer when prices are high, resulting in a lower average cost per share over time. DCA is particularly powerful for volatile assets like stocks or crypto, and it turns investing into a consistent habit rather than a stressful guessing game. While lump-sum investing statistically outperforms DCA about two-thirds of the time, DCA provides psychological comfort and is more practical for most people who invest from their paycheck.
Example
Investing $300/month into an ETF: in January you buy at $100/share (3 shares), February at $75 (4 shares), March at $120 (2.5 shares). Average cost: $94.74/share vs. average price of $98.33.
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Related terms
ETF (Exchange-Traded Fund)
A fund that holds a basket of assets (stocks, bonds, or commodities) and trades on a stock exchange like an individual stock.
Compound Interest
Interest earned on both the initial principal and the accumulated interest from previous periods, creating exponential growth over time.
Asset Allocation
The strategy of dividing investments among different asset classes — stocks, bonds, real estate, cash — to balance risk and return according to your goals and risk tolerance.
Portfolio Rebalancing
The process of realigning portfolio weights back to a target allocation by selling overweight assets and buying underweight ones.