Dollar-Cost Averaging (DCA)
investmentAlso known as: DCA, dollar cost averaging
Updated · Written and reviewed by Konstantin Iakovlev
Detailed explanation
When prices drop, your fixed dollar buys more shares; when prices rise, fewer shares. Over time, your average cost per share is lower than the simple time-average price. Counter-intuitively, academic research (Vanguard, others) shows lump-sum investing outperforms DCA about 67% of the time over multi-year periods because markets trend up. But DCA reduces regret and emotional anxiety for risk-averse investors. Most 401(k) contributions are inherent DCA (every paycheck). Best applied to broad-market index funds rather than individual stocks.
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