Dollar Cost Averaging (DCA)
What Is Dollar Cost Averaging (DCA)
Dollar Cost Averaging (DCA) is an investment strategy where an investor regularly puts a fixed amount of money into a specific asset, regardless of its price. This method helps reduce the impact of market fluctuations by spreading out purchases over time, instead of making a large investment all at once.
Dollar cost averaging involves investing a fixed amount in an asset at regular intervals, such as weekly or monthly. This strategy helps mitigate the risk of investing a lump sum at an unfavorable market price. By consistently investing regardless of market fluctuations, investors can potentially lower their average purchase cost over time.
DCA involves three main steps: deciding on a fixed investment amount, making investments at regular intervals, and purchasing the shares (if it is stock) or coins (if it is cryptocurrency). With each investment, the fixed amount buys more shares or coins when prices are low and fewer shares or coins when prices are high, averaging out the purchase price over time.