Dollar-Cost Averaging

Dollar-cost averaging (DCA) is investing a fixed amount of money at regular intervals regardless of price. You buy more shares when the price is low and fewer when it is high. Over time, the average price you pay tends to be lower than the average price over the period — because you're putting the same dollar amount into a fluctuating asset. The strategy does not guarantee a profit or eliminate risk; it reduces the impact of timing the market by spreading purchases over time.

The psychological appeal is strong. Lump-sum investing — putting all your capital in at once — leaves you exposed to the risk that you bought at a peak. DCA lets you participate in the market without the stress of picking a single entry point. For many investors, the discipline of investing regularly (e.g. every month from salary) is easier than deciding when to deploy a large sum. The cost is that you may hold cash that could have been invested — in a rising market, lump sum typically beats DCA because the market spends more time going up than down. In a falling or volatile market, DCA can outperform because you buy more at lower prices.

The model is best used as a behavioural tool: it enforces consistency and removes the temptation to time the market. It is not a free lunch. It does not "reduce risk" in the sense of lowering volatility of the asset — it spreads your entry over time. The key is to pair DCA with a long time horizon and an asset allocation you can hold through drawdowns. Used that way, it helps investors stay invested and avoid the worst behavioural mistake — selling low after buying high.