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.