What Is Dollar cost averaging (DCA)?
Dollar cost averaging (DCA) is an investment strategy in which an investor divides a larger sum of money into smaller investments, made at regular intervals over a longer period of time. The goal of dollar cost averaging is to reduce the impact of market volatility on the investment portfolio by spreading out the investment over time, rather than investing the entire amount at once.
For example, an investor who wants to invest $10,000 in a stock may choose to invest $1,000 every month for 10 months, rather than investing the full $10,000 in one lump sum.
This approach can help to reduce the impact of short-term market fluctuations and allow the investor to accumulate more shares when prices are low and fewer shares when prices are high.