Dollar-cost averaging (DCA)

Dollar-cost averaging (DCA) is the practice of investing a fixed sum of money at regular intervals, for example monthly, rather than investing a lump sum all at once. Because the fixed amount buys more shares when the price is lower and fewer when it is higher, the average cost per share tends to be lower than the average price over the period, though not necessarily lower than a lump sum invested at the start.

DCA is common in retirement savings and payroll-deduction plans, where contributions naturally arrive periodically as part of a broader asset allocation plan, rather than as a single lump sum. This differs from portfolio rebalancing, which restores an existing portfolio to target weights rather than deploying new cash over time.

The main benefit of DCA is behavioral: it removes the pressure to time entry points and smooths out the emotional impact of volatility. The common misreading is assuming DCA outperforms lump-sum investing; because markets rise more often than they fall over long periods, investing a lump sum immediately has, on average, outperformed spreading it out, and DCA's real advantage is reducing regret and volatility exposure, not maximizing expected return.