Orders & execution
Dollar-cost averaging
Also called DCA, Pound-cost averaging or Regular investing
Investing a fixed amount at regular intervals, regardless of the price on the day.
How it works
Because the amount is fixed, you automatically buy more units when prices are low and fewer when they are high, which produces a lower average cost than buying the same number of units each time.
Its real value is behavioural. It removes the timing decision entirely, which is the decision people most reliably get wrong, and it turns investing into a habit rather than a series of judgements.
Where it misleads people
Compared against investing a lump sum immediately, DCA has historically underperformed on average, simply because markets rise more often than they fall. It buys you a better night’s sleep, not a better expected return.
Worked example
Investing $500 monthly at prices of $50, $40 and $60 buys 10, 12.5 and 8.33 units — an average cost of about $48.65, below the $50 average of the three prices.
Related terms
- CompoundingEarning returns on the returns you already earned, so growth accelerates the longer you leave it alone.
- Fractional sharesBuying part of a share, so you can invest a fixed sum rather than a whole number of shares.
- Market timingTrying to buy before rises and sell before falls, rather than staying invested throughout.
- Behaviour gapThe difference between what a fund returned and what its investors actually earned in it.
More in Orders & execution
- Fill-or-kill
- Day order
- Trailing stop
- Good-till-cancelled
- Time in the market
- Limit order
- Stop-limit order
- Market order
All 12 Orders & execution terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.