An investment strategy in which a fixed dollar amount is invested regularly at set intervals, regardless of the asset's price or market conditions, is called Dollar-Cost Averaging (DCA). This approach involves systematically investing the same amount of money over time, which means buying more shares when prices are low and fewer shares when prices are high. This can lower the average cost per share and reduce the impact of market volatility on the overall investment
. Key features of dollar-cost averaging include:
- Investing a fixed amount at regular intervals (e.g., monthly)
- Avoiding the need to time the market, which is difficult even for professionals
- Potentially reducing the average purchase price by buying more shares when prices drop and fewer when prices rise
- Helping investors maintain a disciplined, emotion-free investing habit by automating contributions
- Benefiting both new and experienced investors by smoothing out market fluctuations over time
In summary, dollar-cost averaging is a strategy designed to build wealth gradually and manage risk by spreading investments evenly over time rather than investing a lump sum all at once
