Glossary
What Is Dollar-Cost Averaging (DCA)? Definition and Example
Dollar-cost averaging is investing a fixed amount at regular intervals, such as every month, regardless of the price. In some countries the same idea is called a SIP.
What it means
Regular investing removes the need to time the market and builds a habit. It does not guarantee a profit or protect against loss, because you are still buying assets whose prices can fall. It works best with low-cost investments you plan to hold for years.
Example
Investing 200 on the first day of each month into a broad index fund is dollar-cost averaging.
Why it matters
Automating regular investments makes consistency easier than trying to pick the perfect moment.
Related terms
- Asset Allocation: Asset allocation is how you divide your investments between asset types such as shares, bonds, cash and.
- Index Fund: An index fund is a fund designed to match the performance of a market index, such as the S&P 500, by holding.
- Compound Interest: Compound interest is interest earned on both your original money and on the interest it has already earned.
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Frequently asked questions
Is DCA better than investing a lump sum?
Neither is always better. Lump sums can do better when markets rise, and DCA can feel easier and reduce regret.
Does DCA guarantee profit?
No. Prices can fall.
What is a SIP?
A systematic investment plan, which is the same regular-investing idea used in some countries.