What is dollar cost averaging (DCA)?

Dollar cost averaging (DCA): Investing a fixed amount every month regardless of price. You do not need to pick the right moment, but it does not guarantee a profit.

With dollar cost averaging you invest a fixed amount at a fixed moment, for example 100 euros every month. You do not look at the price.

When the price is low, the same money buys more units. When it is high, it buys fewer. As a result your average purchase price is often below the plain average of the prices.

The big advantage is peace of mind. You do not have to guess the right moment, and it fits a fixed monthly budget.

Example
You invest 100 euros for three months. The price is 10 euros, then 8 euros, then 12.50 euros. You buy 10, 12.5 and 8 units, 30.5 units in total for 300 euros. You pay 9.84 euros per unit on average, while the average of the three prices is 10.17 euros.

Watch out
Dollar cost averaging does not guarantee a profit. If the price falls for a long time, you still make a loss with this approach.

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