Also known as: DCA, Dollar cost averaging, Pound cost averaging
DCA: regular investing
A strategy of investing the same amount at regular intervals regardless of what the market is doing. It removes the need to pick the right moment.
With DCA you invest the same amount at regular intervals, €100 every month, say, whether the market is rising or falling. You are not trying to guess the best moment.
As a result you automatically buy more units when they are cheap and fewer when they are expensive.
How it works
A fixed sum buys more units the lower the price is. Cheap months therefore enter your average with more weight than expensive ones.
The effect is stronger the higher the volatility. On a calm market it barely appears at all.
Why it matters
It removes the need to time the market. Catching the bottom is something even professionals fail at over the long run. DCA makes the question go away: you do not need to know what the market will do tomorrow.
It turns investing into a habit. A standing order keeps working when the headlines are bad and you have no appetite to invest. Which is precisely when you are buying most cheaply.
It fits how people earn. Most of us have a monthly income rather than a lump sum sitting idle. DCA is therefore the natural mode for an ordinary saver.
What to watch out for
It is not a way to reliably earn more. This is the most common misunderstanding. If the market rises throughout, a lump sum invested at the start does better: the money had longer to work. DCA is a tool for discipline and for reducing the risk of bad timing, not a promise of a higher return.
Regularity is no substitute for choosing. DCA says when to invest, not in what. Paying regularly into a bad investment does not make it a good one, that is what diversification is for.
Try it yourself
Set a monthly contribution in the compound interest calculator and watch regular hundreds turn, over the years, into a sum the contributions alone do not explain: the rest is compound interest.