Dollar Cost Averaging

From Investing Wiki

Definition

Dollar cost averaging (DCA, and also sometimes known as a constant dollar plan in some instances) is a stock market investing strategy that involves purchasing shares at variant prices and then averaging the amount paid.

Dollar cost averaging has been popular with rank and file investors, but may not earn as much as lump sum investing in the long run.

Dangers of dollar cost averaging

There are a number of risks in doing dollar cost averaging in the current market. Finance professors have shunned the concept of dollar cost averaging for two decades, but the strategy is pushed by many advisers. Market studies conducted over long periods have show that dollar-cost averaging nearly always produces lower returns than investing lump sums in diversified portfolios, and does not generally reduce the risk of the investment meaningfully.[1]

References

• The costly myth of dollar cost averaging