dollar-cost averaging achieves

Dollar-cost averaging smooths out volatility

Dollar-cost averaging (DCA) is an investment strategy that involves investing a fixed amount of money at regular intervals, regardless of market conditions. This approach allows investors to buy more shares when prices are low and fewer shares when prices are high, leading to a smoother investment experience over time.

Example

An investor decides to invest $100 every month into a stock market index fund. Over a year, if the market experiences high volatility, the investor will purchase more shares during the market's low points and fewer shares during high points, averaging out the cost of shares over time.

Remember this

Understanding DCA helps investors manage the inherent volatility of the stock market by spreading out their investments, potentially reducing the impact of market fluctuations on their investment strategy.

Text adapted from Wikipedia, licensed under CC BY-SA 4.0.

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Educational content, not financial advice.

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