- 1DCA = investing fixed amounts at regular intervals regardless of price
- 2You automatically buy more shares when prices are low, fewer when prices are high
- 3Lump-sum investing beats DCA about 2/3 of the time (because markets rise)
- 4DCA's value is psychological — it removes the pressure of timing decisions
- 5Best for: regular income investors, those who freeze up at market dips
#What Is Dollar Cost Averaging?
Dollar cost averaging (DCA) is investing a fixed dollar amount at regular intervals — say $500 every two weeks — regardless of whether the market is up, down, or sideways.
Example: $500/month into a stock
| Month | Price | Shares Bought | Total Shares | Total Invested |
|---|---|---|---|---|
| Jan | $50 | 10.0 | 10.0 | $500 |
| Feb | $45 | 11.1 | 21.1 | $1,000 |
| Mar | $40 | 12.5 | 33.6 | $1,500 |
| Apr | $48 | 10.4 | 44.0 | $2,000 |
| May | $55 | 9.1 | 53.1 | $2,500 |
| Jun | $52 | 9.6 | 62.7 | $3,000 |
Average price paid: $47.85 (vs. average market price of $48.33)
You automatically bought more shares when the price was low and fewer when it was high.
#DCA vs. Lump-Sum Investing
If you have $60,000 to invest, should you invest it all at once or spread it over 12 months?
The Data
Vanguard research (2012) found that lump-sum investing beats DCA approximately 68% of the time across global markets. The reason is simple: markets trend upward over time. By waiting to invest, you miss out on returns.
When DCA Wins
DCA outperforms when you invest just before a significant market decline. If the market drops 20% over the next 6 months, DCA would buy shares at progressively lower prices.
The Real-World Answer
For most people, DCA wins in practice because: - Most investors don't have a lump sum — they earn income over time - The psychological benefit of DCA is enormous - Investing $5,000/month is far easier emotionally than investing $60,000 at once
#The Psychology of DCA
DCA's biggest advantage isn't mathematical — it's behavioral:
| Behavioral Trap | How DCA Helps |
|---|---|
| Analysis paralysis | Removes the decision — you invest automatically |
| Fear of buying high | You always buy, including when prices drop |
| Panic selling | Regular investing habit builds discipline |
| Market timing | Eliminates the temptation entirely |
| Regret aversion | You never "should have waited" — you always invest |
#How to Implement DCA
Step 1: Choose Your Amount
A fixed dollar amount you can commit to every period. It should be sustainable — consistency matters more than size.
Step 2: Choose Your Frequency
| Frequency | Best For |
|---|---|
| Weekly | Maximum smoothing effect |
| Bi-weekly | Matches most pay cycles |
| Monthly | Simple and effective |
| Quarterly | For larger, less frequent investments |
Step 3: Automate It
Set up automatic transfers and purchases. Automation removes emotion and ensures consistency.
Step 4: Don't Stop During Downturns
This is the hardest part — and the most important. When the market drops 20%, your instinct screams to stop investing. But downturns are when DCA works best, because you're buying more shares at lower prices.
#DCA With Factor-Selected Stocks
DCA works with any investment — index funds, individual stocks, or factor-based portfolios. You can use our rankings to:
- 1Select a diversified basket of high-scoring stocks
- 2Invest a fixed amount across them each month
- 3Rebalance quarterly based on updated factor scores
This combines the emotional discipline of DCA with the analytical rigor of factor investing.
#Common DCA Mistakes
1. Stopping During Bear Markets
The whole point is to keep investing through downturns. Stopping defeats the purpose.
2. DCA Into a Single Stock
Diversification still matters. DCA into a portfolio, not one concentrated bet.
3. Never Rebalancing
DCA builds positions over time but doesn't rebalance them. Review your allocation periodically.
4. Using DCA to Procrastinate
If you have a lump sum and are using DCA simply to avoid making a decision, you're likely leaving returns on the table. The data favors investing sooner.
#Start Building Your Investment Plan
Last updated: February 6, 2026