Sources: IRS, SEC, Federal Reserve, U.S. Bureau of Labor Statistics & U.S. Census Bureau. See our editorial standards.
Investing a fixed dollar amount at regular intervals regardless of price, smoothing out market volatility over time.
Definition: Investing a fixed dollar amount at regular intervals regardless of price, smoothing out market volatility over time.
Dollar-cost averaging (DCA) means investing the same amount on a set schedule — say $500 every month — no matter what the market is doing. You automatically buy more shares when prices are low and fewer when prices are high, removing the temptation to time the market. It is the strategy behind every automatic 401(k) contribution.
Investing $300 monthly: at $30/share you buy 10 shares; if the price drops to $20 next month you buy 15 shares. Over time your average cost per share lands below the simple average price.
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