Dollar-cost averaging
InvestingDefinition
Investing a fixed dollar amount on a regular schedule regardless of price. Smooths out timing risk by buying more shares when prices are low and fewer when prices are high. The default approach inside 401(k)s.
Mathematically inferior to lump-sum investing in 60-70% of historical periods (markets rise more often than they fall), but psychologically much easier — reduces regret if you happen to invest right before a crash.
Mathematically inferior to lump-sum investing in 60-70% of historical periods (markets rise more often than they fall), but psychologically much easier — reduces regret if you happen to invest right before a crash.
Example
$500/month into VOO for 5 years (60 contributions, $30K total). Average cost basis ends up below the simple average price during the period because more shares are purchased on dips.
Related tool
Open the compound tool on Arsenal.finance →