Dollar-cost averaging: investing a fixed amount regularly
Investing the same amount at regular intervals spreads your purchases over time. It does not guarantee a profit or protect against loss.
Sourced from official pages · Updated September 30, 2026💡 Key takeaways
- Dollar-cost averaging means investing a fixed amount on a regular schedule.
- When prices are lower you buy more shares; when higher, fewer.
- It builds a habit but does not guarantee gains or prevent losses.
- A 401(k) payroll contribution is a form of it.
How it works
Instead of investing a large amount at once, you invest a fixed amount each month or paycheck. When prices are lower your money buys more shares; when prices are higher it buys fewer. This is what a 401(k) payroll contribution does automatically.
What it does and does not do
- It builds a habit and reduces the risk of investing everything just before a decline.
- It does not guarantee gains or prevent losses.
- If you already have a lump sum, you can invest it all at once or spread it out; neither approach is guaranteed to do better, so choose the one you can stick with.
Try the numbers
Use the compound interest calculator to see regular contributions grow, and the fee calculator to see how costs affect them.
A simple illustration
| Month | Amount invested | Share price | Shares bought |
|---|---|---|---|
| 1 | $100 | $10.00 | 10.00 |
| 2 | $100 | $8.00 | 12.50 |
| 3 | $100 | $12.00 | 8.33 |
| Total | $300 | Average price $10.00 | 30.83 |
Your average cost per share is about $9.73 ($300 ÷ 30.83), slightly lower than the $10.00 average price. This is a hypothetical example.
Lump sum vs spreading it out
If you receive a large amount, you can invest it at once or spread it over time. Neither approach is guaranteed to do better; choose the one you can stick with, keeping fees in mind.
🔤 Key terms
| Term | Meaning |
|---|---|
| Lump sum | Investing all at once |
| Average cost | Total invested divided by shares bought |
| Automatic investment plan | A recurring purchase set up with a provider |
| Volatility | How much prices move |
⚠️ Common mistakes to avoid
- Stopping contributions after a market decline.
- Assuming DCA guarantees a profit.
- Ignoring fees on each purchase.
- Not increasing contributions as income grows.
🛠️ Try it yourself
❓ Frequently asked questions
Is DCA better than lump-sum investing?
Neither is guaranteed to do better.
How often should I invest?
Monthly or each paycheck is common.
Does DCA reduce risk?
It reduces the risk of investing everything just before a decline, but investments can still lose value.
Does DCA work in a falling market?
It buys more shares when prices fall but does not prevent losses.
📚 Sources
This guide is general information, not financial, tax or legal advice. Rules and limits change; confirm with the sources above or a licensed professional.