The Question

What is dollar cost averaging?

Dollar-cost averaging (DCA) is an investment strategy where an investor invests a fixed amount of money at regular intervals, typically monthly, regardless of the current market price of the investment. For example, an investor might decide to invest $500 every month into a particular stock or mutual fund.

The consequence of DCA is that it helps to reduce the impact of market volatility. In a down market, dollar cost averaging helps reduce your average cost and, therefore, your average loss. In an up market, dollar cost averaging helps increase your average cost and, therefore, your average gain.

DCA is not a guarantee of profit and does not ensure that an investor will not lose money. However, it does reduce volatility. Answered question April 10, 2023

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