DCA (Dollar Cost Averaging)

DCA means investing a fixed amount each month. It reduces timing risk and is the foundation of most boglehead portfolios. Track your DCA history in Index Balance.

Definition

DCA (Dollar Cost Averaging) is the strategy of investing a fixed amount of money at regular intervals, regardless of the asset's price. By always investing the same amount, you automatically buy more units when prices are low and fewer when they are high, resulting in an average cost per unit lower than the average price over the period.

For most individual investors, DCA is not just a strategy but a practical necessity: you invest what you save each month. Academic studies show that investing all available capital at once (lump sum investing) statistically outperforms DCA in markets with a long-term upward trend, but DCA reduces emotional risk and the risk of poor timing.

Index Balance shows the monthly contributions chart with fund-level detail, allowing you to visualise your DCA history and total invested in each period.

Practical example

You invest €300 every month for 12 months in an MSCI World fund. In good months the fund is worth €150/unit and you buy 2 units. In bad months it is worth €120 and you buy 2.5 units. By year end you have bought more units in the cheap months, resulting in an average price of ~€133 even though prices oscillated between €120 and €155.