Dollar-cost averaging, explained (with the math)
Why buying a little at a time can beat trying to pick the perfect moment — and when it doesn't.
Dollar-cost averaging (DCA) is the unglamorous habit of investing the same amount on a regular schedule — say $200 a month — no matter what the price is doing. You buy fewer shares when prices are high and more when they're low, so your average purchase price smooths out over time. It is the opposite of trying to time the market, and for most people it is the more realistic plan, because it matches how money actually arrives: a bit each paycheck.
The math, in one line
Each contribution buys (dollars in) ÷ (price that day) worth of units. Add up every purchase and you own a pile of shares bought at many different prices; the value today is simply that total share count times today's price.
units bought = contribution ÷ price · total value = Σ units × today's price
Because the cheap-day purchases buy more shares, your blended cost ends up below the simple average of the prices you paid — a quiet mathematical edge that shows up most when the ride is bumpy.
Lump sum vs. a bit each year
Here is the part people get wrong: over long, generally-rising markets, investing a lump sum immediately tends to beat DCA, simply because the money is in the market sooner and has longer to compound. DCA's advantage is not usually higher returns — it's a smoother ride and far less regret, because you never bet everything on a single day's price. If you happen to lump-sum in right before a crash, DCA would have rescued you; if you do it right before a boom, DCA would have held you back. You don't know which in advance — which is the whole point.
You can see both at once on this site. Open any scenario — for example the S&P 500 since 2005 — and switch the calculator from a lump sum to a bit each year to watch the two paths diverge. Or run a head-to-head on the compare page and toggle the same switch to see how steady buying narrows the gap between winners and losers.
When DCA makes the most sense
DCA shines for volatile assets and for anyone who would lie awake after deploying a large sum all at once. It also imposes a useful discipline: you keep buying through the scary months, which is exactly when the best long-term prices tend to appear. The cost is that in a roaring bull market you'll trail the all-in investor. That trade — a little expected return for a lot less stomach-churning — is one most people are happy to make.