Portfolio · Investing Glossary
What Is Dollar Cost Averaging (DCA)?
Investing a fixed amount on a regular schedule regardless of market price.
The Full Definition
Dollar cost averaging is the practice of investing a fixed dollar amount at regular intervals — weekly, monthly, or per paycheck — regardless of what the market is doing. When prices are high, your fixed amount buys fewer shares. When prices are low, it buys more. Over time, this naturally lowers your average cost per share. More importantly, it removes the psychological burden of trying to time the market, which research consistently shows most investors cannot do successfully.
Real-World Example
Investing $500 every month into an S&P 500 index fund, regardless of whether the market is up or down, is dollar cost averaging. During a correction when prices drop 20%, your $500 buys more shares than usual — setting you up for larger gains in the recovery.
Related Terms
- Index FundA fund that tracks a market index like the S&P 500, owning all its components.
- Market TimingAttempting to predict market movements and buy/sell accordingly.
- Lump Sum InvestingInvesting a large amount of money all at once rather than spreading it out over time.
- Cost BasisThe original purchase price of an investment, used to calculate gains or losses.