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How does dollar-cost averaging work?

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Quick answer

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.

Step by step

  1. You invest a fixed amount on a regular schedule.
  2. You buy more when prices are low, fewer when high.
  3. It smooths your average purchase price over time.
  4. It reduces the risk of poorly timing the market.

People also ask

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.

Part of the guide: Money Basics: Save, Borrow & Invest →