Dollar-Cost Averaging (DCA) Strategy
Updated on March 13, 2019
Timing the stock market can seem almost impossible. If you don't want to deal with this burden, the Dollar-Cost Averaging (DCA) strategy is for you! The name of this strategy might sound complex but it's actually pretty simple. In a nutshell, dollar-cost averaging instructs you to buy the same dollar amount of an investment on a regular basis.
Whether this basis is weekly, bi-weekly, or monthly, dollar-cost averaging forces you to continuously buy stocks and bonds, no matter what's going on in the stock market. This allows you to put guess-work aside and ease into the stock market over time. With dollar-cost averaging, you will buy the highs and lows of your investments. This minimizes your risk of buying your assets at the worst time possible.
Real World Example
You might already be putting this strategy to work without even knowing it. For example, if you have a retirement plan like a 401(k) or IRA, you're most likely contributing to it every time you get paid. This is dollar-cost averaging at its finest! Instead of attempting to pick the best time to make an investment, you add a set percentage of your paycheck to your retirement fund on a regular basis.
Ultimately, dollar-cost averaging removes the need to figure out when it's the best time to invest. Combine this method with other strategies like asset allocation to build your wealth over time.