Dollar-Cost Averaging

DCA means investing fixed amounts at regular intervals. Discover why it is the most sustainable strategy for index funds. Try it with Index Balance.

Definition

Dollar-cost averaging (DCA) is the strategy of investing a fixed amount of money at regular intervals — monthly, quarterly, etc. — regardless of whether the market is rising or falling. By always investing the same amount, you buy more units when prices are low and fewer when they are high, resulting in an average purchase price lower than the average price over the period.

For the index fund investor, DCA is probably the most practical and psychologically sustainable investment strategy. It eliminates the pressure of trying to time the market, reduces the risk of investing a lump sum just before a crash, and turns investing into an automatic habit. Most retail investors unknowingly practise DCA every time they allocate part of their monthly salary to index funds.

Index Balance lets you record each periodic contribution and see how the average purchase price of each fund evolves over time. Try it free at indexbalance.com.

Practical example

You invest €300 per month in an MSCI World fund for 12 months. In January, the price is €100/unit; you buy 3 units. In July, the market has fallen to €80; you buy 3.75 units. In December, the market has recovered to €110; you buy 2.73 units. At year end you have bought 36.2 units at an average price of €99.4, when the average price over the period was €97. Index Balance calculates this automatically every time you update your portfolio.