Dollar-Cost Averaging: A Calm Way to Invest
Investing a fixed amount on a fixed schedule removes the impossible challenge of timing the market.
The problem it solves
Lump-sum investing maximises expected return but is psychologically brutal — if the market falls the week after you invest, regret is intense. Dollar-cost averaging (DCA) spreads contributions over time so no single moment matters too much.
How it works
Invest a fixed dollar amount on a fixed schedule (typically monthly) regardless of price. When prices are high, you buy fewer shares. When prices are low, you buy more. The average cost per share works out smoother than picking a moment.
Why it's the default in retirement plans
Every 401(k) contribution from your paycheck is dollar-cost averaging. You buy more shares when the market is down (those scary months) and fewer when it's high. Over decades, this is precisely the right behaviour.
Lump sum vs DCA: the trade-off
Mathematically, lump-sum investing wins on average roughly two-thirds of the time because markets rise more often than they fall. DCA wins on peace of mind, especially after a windfall when fear of mistiming is highest.
How to set it up
Choose an amount and a date. Set up an automatic transfer from your bank to your brokerage, and an automatic investment into your chosen funds. Then ignore it for years.
Frequently asked questions
How often should I contribute?
Monthly works for most people because it matches income. Weekly or bi-weekly is fine if your brokerage allows it.
Should I stop DCA in a falling market?
Absolutely not — that's when you buy the most shares at the lowest prices. Stopping defeats the entire purpose.
Is DCA better than a lump sum from a bonus?
Mathematically usually no, behaviourally often yes. If a lump sum would make you anxious, spreading it over 6–12 months is reasonable.