Dollar-Cost Averaging (DCA)

Dollar-cost averaging is a strategy of buying a set dollar amount on a fixed schedule, such as 100 dollars every week, rather than investing a lump sum at once. Because the same amount buys more units when prices are low and fewer when prices are high, the average cost per unit ends up lower than the average price over the period.

Example: four monthly purchases of 100 dollars at prices of 50, 25, 40, and 50 dollars buy 2, 4, 2.5, and 2 units, for a total of 10.5 units for 400 dollars. The average cost is about 38.10 dollars per unit, below the simple average price of 41.25 dollars.

DCA removes the need to guess the right moment to buy and reduces the emotional difficulty of investing during downturns. It does not guarantee a profit; if an asset falls and stays down, every purchase loses money. Many exchanges offer automatic recurring purchases to make the approach easy to follow.