dollarcost

Dollar-cost averaging (DCA) is an investment approach in which an investor commits to placing a fixed dollar amount into a security or portfolio at regular intervals, regardless of price. Over time this tends to result in buying more shares when prices are low and fewer shares when prices are high, potentially lowering the average cost per share.

Implementation typically involves automatic contributions on a schedule (for example monthly into a mutual fund or ETF). The strategy is particularly common for retirement accounts and beginner investors because it reduces the temptation to time the market and promotes disciplined saving; it does not require perfect market predictions.

Advantages include reduced emotional investing, lower risk of a large upfront loss from market timing, and simplicity. Disadvantages include that it does not guarantee profits or protect against losses; in steadily rising markets, systematic purchases can yield a higher average purchase price than a lump-sum investment, and transaction costs or taxes can erode returns. It also assumes ongoing capital availability and appropriate asset allocation.

Variations include constant-dollar DCA (investing the same dollar amount) and percentage-based DCA (investing a fixed percentage of assets). Related concepts are value averaging, systematic investment plans, and automated investing. Critics emphasize that while DCA can improve risk management, it should be used in conjunction with diversification and a well-defined long-term plan.