Glossary · Investing and personal finance
Dollar-cost averaging
Dollar-cost averaging means investing a fixed amount at regular intervals, say $100 every month, whatever the price, instead of all at once.
Also called: DCA, regular investing, pound-cost averaging, averaging in
$36,000 paid in from Nov 1996 to Oct 2026, dividends reinvested.
Share of start months since 1934: investing at once vs spreading over 12 months.
In plain words
You put $100 into a fund on the first of every month. When the price is high, your $100 buys a few shares; when it is low, it buys more. Over time you automatically buy more shares when they are cheap. That habit is dollar-cost averaging.
Most people already do it without the name: a slice of every paycheck goes into a 401(k) or a savings plan. It takes the guesswork out (no deciding whether today is a good day to buy) and makes falling prices less scary, because they mean cheaper shares.
$100 a month in the S&P 500 for the last 30 years, $36,000 in all, grew to about $245,631 by Oct 2026.
Example
$300 a month for four months
- Month 1: the price is $30, so your $300 buys 10 shares.
- Month 2: $20, 15 shares. Month 3: $15, 20 shares.
- Month 4: $25, 12 shares. In all: $1,200 for 57 shares.
- Your average cost: $1,200 ÷ 57 = $21.05 a share, below the average price of $22.50.
A fixed amount buys more when prices are low, so the average cost is always at or below the average price.
One level deeper
If you already have a lump sum, is it better to invest it all at once or spread it out? Because markets rise more often than they fall, investing at once has usually come out ahead. Testing every start month since 1934 in US stocks, with the waiting money in Treasury bills, the lump sum was ahead after the year in 70% of the cases.
Spreading it out wins when prices fall soon after you start, and it lowers the regret of putting everything in at the top. Many people accept the lower expected result for that peace of mind: it is a choice about risk, not a free gain.
For money that arrives with each paycheck there is nothing to decide: investing it as it comes is dollar-cost averaging by default.
$100 a month into the S&P 500 for 30 years
The dashed line is what was paid in, $100 a month; the shaded area is what it was worth, with dividends reinvested. In the dips the same $100 bought the most shares.
The numbers behind the chart
| Date | Value of the account | Total paid in |
|---|---|---|
| Nov 1996 | $100 | $100 |
| Dec 2000 | $6,191 | $5,000 |
| Dec 2010 | $21.6K | $17K |
| Dec 2020 | $103K | $29K |
| Dec 2022 | $115K | $31.4K |
| Dec 2023 | $141K | $32.6K |
| Dec 2024 | $185K | $33.8K |
| Dec 2025 | $215K | $35K |
| Oct 2026 | $246K | $36K |
Why it matters
It turns investing into a habit that does not depend on reading the market.
It makes market falls useful instead of frightening: the same $100 buys more shares.
It is how most people actually build savings: a little from every paycheck, for decades.
A common mistake
Myth: Dollar-cost averaging always beats investing a lump sum.
In fact: Not usually. Since 1934, putting a lump sum into US stocks at once was ahead of spreading it over 12 months in 70% of start months, because markets rise more often than they fall. Spreading it out mainly reduces regret if a crash comes right after you start.
Questions people ask
Does dollar-cost averaging work?
It works as a habit: steady investing without trying to guess the right day. It does not raise the expected return compared with investing the same money at once; it lowers the risk of buying everything at a peak.
How often do people invest with dollar-cost averaging?
Usually with every paycheck or once a month. The exact day matters very little over the years; low trading costs matter more.
What is the difference between dollar-cost averaging and value averaging?
Dollar-cost averaging invests the same amount every time. Value averaging changes the amount so the account grows by a set sum each month: more after falls, less (or even selling) after rises.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- 3-month Treasury bill, secondary market rate: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, series TB3MS; retrieved from FRED, Federal Reserve Bank of St. Louis.
- S&P Composite price and total return since 1871, and US consumer prices: Robert J. Shiller, Online Data (shillerdata.com); total return with dividends reinvested monthly, calculated by BigCapital.
- This page explains a term. It is not investment advice.