Dollar-Cost Averaging
Investing a fixed amount of money at regular intervals regardless of price, which averages out the purchase price over time.
Example
Investing $500 on the first of every month, rather than $6,000 all at once in January, means you buy more shares when prices dip and fewer when they're high, averaging your cost basis over the year.
Common Misconception
DCA doesn't guarantee better returns than investing a lump sum — historically, lump-sum investing outperforms DCA more often than not, since markets trend upward over time — but DCA does reduce the emotional and timing risk of investing everything right before a downturn.
Why It Matters
For most people investing out of a regular paycheck, DCA isn't really a choice — it's the natural result of contributing to a 401(k) or IRA every pay period.