Dollar-Cost Averaging

Dollar-cost averaging involves investing a predetermined amount of money on a consistent schedule, such as weekly or monthly, regardless of whether the market is up or down. This systematic approach means you buy more shares when prices are low and fewer shares when prices are high, resulting in a lower average cost per share over time.

The primary benefit of dollar-cost averaging is removing emotion from investment decisions. Instead of trying to time the market, which even professional investors struggle to do consistently, you follow an automatic plan that works in all market conditions. Most employer retirement plans like 401k accounts use this approach by default through payroll deductions.

While lump-sum investing statistically outperforms dollar-cost averaging about two-thirds of the time because markets generally trend upward, dollar-cost averaging reduces the risk of investing a large sum at an unfortunate peak. For most people building wealth over decades, the disciplined habit of regular investing matters far more than optimal timing.