dollar-cost averaging
Also called: regular contributions
Investing a fixed amount at regular intervals, so you buy more units when prices are low and fewer when they are high.
Dollar-cost averaging means investing the same amount on a fixed schedule, for example every month, whatever the market is doing. When prices are low, the fixed amount buys more fund units; when prices are high, it buys fewer. Over time your average cost per unit lands below the average price, simply because more units were bought cheap.
People search for it with two different situations in mind. The first is saving from a salary: the money arrives monthly, so investing it monthly is the only real choice, and the habit itself does most of the work. The second is spreading money you already have over several months instead of investing it all on day one. That second use is a trade-off, not a free gain: it usually ends a little lower, but it hurts less if a fall comes right after the start.
The real strength of a regular schedule is behavioral. An automatic monthly amount removes the question "is now a good moment?", keeps you buying through bad years and makes stopping a deliberate decision rather than a reaction to the news.
Example
Zapas tests both uses on its synthetic Tessaro World history. Regular saving first: $100 a month at 6% a year from age 25 grows to about $190,768 by 65, of which only $48,000 was paid in.
Spreading a sum is a different story. Across 31 ten-year windows, $12,000 split into 12 monthly parts of $1,000 ended higher than investing it all at once in only 10 windows. Its best moment was a start in year 22, just before the bottom of the crash: $27,884 after 10 years versus $23,649 at once. The numbers are synthetic and show the trade-off, not a forecast.
Common mistakes
- Mixing up investing a salary monthly (no real alternative) with spreading a sum you already have (a trade-off).
- Believing a regular schedule removes the risk of loss; it only changes when you buy.
- Pausing contributions during a fall, which is exactly when the fixed amount buys the most units.
- Ignoring per-purchase costs: many small buys with a fixed fee each can eat the benefit.