Dollar-Cost Averaging (DCA)
Steadily buying a set amount in installments rather than all at once, to smooth out the swings in your average purchase price.
In plain terms
Putting in a lump sum at once shakes you badly if you happened to buy on an expensive day. Instead, steadily buying, say, $100 a month buys more when cheap and less when expensive, so the average price naturally levels out.
It is a way to make time your ally without straining to guess "when is the bottom." With less need to fret over timing, it suits investing calmly for the long run.
What it tells you
Unlike buying all at once (lump sum), it slices up the buying timing to reduce "the risk of piling in on an expensive day."
By making consistency a rule, it reduces emotional mistakes like selling in fear when the market plunges or chasing in when it spikes.
Formula
no set formula — invest the same amount in the same target steadily every month (or week). (you automatically buy more when cheap and less when expensive, leveling the average price)
What high or low means
In a choppy phase where the price rises and falls, the effect of lowering the average price shows up well.
Conversely, if the market only rises steadily over a long stretch, putting in a lump sum early may have turned out better. The goal is risk and emotion management, not maximizing returns.
DCA is not a "never lose" method. Steadily putting money into an asset that only keeps falling piles up losses too. What you buy comes first.
It is easy to confuse with averaging down (buying more of an already-losing stock to lower the average). DCA is buying steadily by a pre-set rule; averaging down is buying more in response to a loss.
Frequent buying can raise fees, so it is best done with a low-fee vehicle.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Dollar-Cost and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.