What is dollar-cost averaging?

Dollar-cost averaging (DCA) is a steady and systematic investment strategy where an investor regularly contributes a fixed amount of money into an investment, regardless of the asset’s price.

Market prices fluctuate by nature. By investing a consistent amount regularly and spreading out those purchases over time, dollar-cost averaging aims to reduce the impact of market volatility. These contributions may be made weekly, monthly, or quarterly, for example.

Dollar-cost averaging prevents investors from trying to time the markets or make emotion-induced investment decisions. Because they invest over an extended period of time, dollar-cost averaging can potentially reduce the impact of short-term market fluctuations.

Over the long term, dollar-cost averaging can also help investors benefit from compounded interest. By consistently contributing capital, they can earn more interest over time.