Dollar-Cost Averaging (DCA)
Investing a fixed dollar amount at regular intervals regardless of price.
What is Dollar-Cost Averaging?
Dollar-cost averaging (DCA) is an investment strategy in which a fixed dollar amount is invested at regular intervals — weekly, monthly, or quarterly — regardless of the asset's current price. When prices are low, the fixed amount buys more shares; when prices are high, it buys fewer. Over time, this produces an average cost per share that may be lower than the average price during the period. DCA reduces the psychological burden of timing the market and is the mechanism behind most 401(k) payroll contributions.
Example
An investor contributes $500 per month to an S&P 500 index fund. In January (price $480) they buy 1.04 units; in February (price $520) they buy 0.96 units — averaging $499 per unit over the two months.