What is Dollar-Cost Averaging?
Investing a fixed amount at regular intervals regardless of price, so you buy more shares when prices are low and fewer when they’re high.
Educational — not investment advice
Dollar-cost averaging (DCA) means committing, say, $500 every month no matter what the market is doing. Mechanically, the fixed dollar amount buys more shares when prices dip and fewer when they rise, smoothing your average entry price.
Its real value is behavioral: it removes the paralysis of trying to time the market and turns investing into an automatic habit you can actually stick to.
The trap most people miss
Versus investing a lump sum you already have, DCA has historically underperformed on average — because markets rise more often than they fall, so waiting keeps money out of the market. DCA is about managing regret and cash flow, not maximizing expected return.
Frequently asked about Dollar-Cost Averaging
Is dollar-cost averaging a good strategy?
It is a sound, low-stress way to invest steadily and avoid market-timing mistakes. If you have a lump sum, investing it at once has historically done better on average — but DCA reduces regret risk.
Does DCA reduce risk?
It reduces the risk of buying everything at a bad moment and smooths your entry price. It doesn’t remove market risk once you’re invested.
Related terms
In Tradune: track your average cost as you add over time.
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This definition is for educational purposes only and is not investment, tax, or financial advice. Concepts are explained in general terms; how they apply to your situation can differ. Always do your own research.