What is dollar cost averaging (DCA)?

A Simple Definition Dollar cost averaging (DCA) is a strategy that can help long-term investors build wealth over many years. Rather than trying to time the market with a lump sum of money and guess the best time to invest, you invest a smaller amount on a regular schedule, such as monthly or bi-weekly.

What is DCA & how does it work?

In this article, we will cover: DCA is also known as a “constant dollar plan”; you may see both terms used online interchangeably. The idea behind dollar-cost averaging is simple: you choose a set amount of money to invest at regular intervals over time, such as monthly, bi-weekly, weekly, or even daily.

How does dollar-cost averaging (DCA) work?

Therefore, DCA can increase the number of shares purchased when the market is declining and can lead to fewer shares purchased if the share price is rising. The dollar-cost averaging example above is better explained diagrammatically as below: