Finance
How does dollar-cost averaging work?
Dollar-cost averaging means investing a fixed amount at regular intervals, no matter the price. You buy more shares when prices are low and fewer when high, smoothing out your average cost and reducing the risk of badly timing the market.
See it in motion.
Watch a 2-minute animated lesson that shows exactly how dollar-cost averaging works.
Step by step
- 1You invest a fixed amount on a regular schedule.
- 2You buy more when prices are low, fewer when high.
- 3It smooths your average purchase price over time.
- 4It reduces the risk of poorly timing the market.
Frequently asked questions
- How does dollar-cost averaging work?
- You invest the same amount at regular intervals, buying more shares when cheap and fewer when expensive.
- Why use dollar-cost averaging?
- It removes the stress of timing the market and smooths out the effect of price swings over time.
- Is dollar-cost averaging better than investing a lump sum?
- It lowers timing risk and is easier psychologically, though lump-sum investing can earn more on average historically.