What is Dollar Cost Averaging?

Dollar cost averaging (DCA) is an investment strategy where you invest a fixed amount of money at regular intervals, regardless of market prices. Instead of trying to time the market with a single large investment, DCA spreads your purchases over time.

The beauty of DCA lies in its simplicity: when prices are high, your fixed investment buys fewer shares. When prices drop, the same amount buys more shares. Over time, this typically results in a lower average cost per share than if you had made a single purchase at the "wrong" time.

DCA vs Lump Sum: Which is Better?

Research shows that lump sum investing outperforms DCA about two-thirds of the time in rising markets. This makes sense—money invested earlier has more time to grow.

However, DCA offers significant psychological benefits:

• Reduces timing risk: You don't need to worry about investing at market peaks
• Easier emotionally: Less stressful than committing a large sum at once
• Matches cash flow: Aligns with regular paychecks and savings patterns
• Builds discipline: Creates a consistent investing habit

Use our volatility scenarios feature above to see how DCA can outperform in choppy or declining markets.

How This Calculator Works

This DCA calculator computes your portfolio growth by:

1. Taking your regular investment amount and frequency
2. Applying compound growth to each contribution based on time remaining
3. Summing all future values to get your final portfolio value
4. Optionally comparing against a lump sum invested at the start

The volatility simulation models different market paths (steady growth, crash & recovery, high volatility) to show when DCA has an advantage.