What is Dollar Cost Averaging (DCA)?
Dollar Cost Averaging is an investment strategy where you invest a fixed amount of money at regular intervals, regardless of the share price. This approach can help reduce the impact of market volatility on your investments.
How DCA Works
- You invest the same amount regularly (weekly, monthly, etc.)
- When prices are high, your fixed amount buys fewer shares
- When prices are low, your fixed amount buys more shares
- Over time, this can lower your average cost per share
Benefits of Dollar Cost Averaging
- Reduces timing risk: No need to time the market perfectly
- Disciplined approach: Encourages regular investing
- Emotional discipline: Reduces impact of market fear/greed
- Accessibility: Suitable for investors with regular income
Note: In strongly trending markets, lump sum investing may outperform DCA, but DCA typically provides more consistent results with less risk of making a poorly-timed investment.
