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What is the DCA formula?

The DCA formula is as follows: Jeff wishes to invest in a mutual fund. He selects Fund A (a mutual fund consisting of a number of blue chip stocks) and decides to invest $3,000 using dollar cost averaging. He will invest $1,000 each month for three months.

How does DCA work?

Middleton claims that DCA helps investors enter the market, investing more over time than they might otherwise be willing to do all at once. DCA also takes the emotion out of investing by spreading out the purchase over time. When investors purchase all at once, they may be more prone to letting their emotions guide their investment choices.

Why is DCA a good investment?

DCA forces you to stay the course, regardless of volatility. It keeps you from trying to “time the market.” By investing the same amount of money every month, you will buy more shares when the market is down and fewer shares when the market is up. You’re not investing with your emotions, which can lead to impulsive choices.

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