What is Dollar Cost Averaging (DCA)?
DCA is an investment strategy where you invest a fixed amount of money at regular intervals (e.g., $200/month)
into a financial asset, regardless of market conditions.
Why DCA Works Well (Especially for Long-Term Investors)
- Reduces timing risk: Avoid investing a lump sum before a market drop.
- Averages your cost over time: Buy more shares when prices are low, fewer when high.
- Emotion-free investing: Helps maintain discipline and avoid emotional decisions.
- Simple & accessible: Perfect for beginners investing regularly, like from a paycheck.
Why DCA Might Not Be Ideal for Everyone
- Shorter investment horizons: Less time to recover from downturns near retirement age.
- Large lump sum available: In rising markets, lump-sum investing might outperform DCA.
- Advanced investors: May prefer market timing or tactical strategies.
Simple Example
You invest $100 per month into a global stock ETF. Over 10 years, he invests $12,000 in total.
Thanks to DCA, his average share cost is reduced by buying more during market dips.
Summary
| Great For | Less Ideal For |
|---|---|
| Beginners | Older investors close to retirement |
| Long-term investors | People with a large amount to invest now |
| People who want simplicity | Advanced traders with analysis skills |
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