What is dollar cost averaging?

Dollar cost averaging, or DCA for short, is an investment strategy that involves investing the same amount of money into an asset (or assets) on a fixed schedule. Read below for more details and examples.
The examples below are for education purposes only, and we are not recommending any of the securities mentioned here.

A basic example

Let's pretend you are going to invest $1,000 in Apple this year. Let's say the money is already in your bank account, sitting in cash and ready to go. You could just go to wherever you invest and buy $1,000 worth of Apple shares at whatever price the market says they are worth today. If all goes well, the price of Apple goes up, and later you sell at a nice profit. Beautiful.

But maybe you're not that confident about when to buy, because you're not sure if the price of Apple today is a good price. If that $1,000 is all the money you're going to invest for the entire year, it's an even more concentrated bet. Not only are you thinking that Apple is a good stock to invest in, but also that the price of Apple today is a good price. Prices go up and down, and the market can be pretty volatile. The decision about when to buy is called timing.

One way to make the decision about timing easier is to split up your $1,000 purchase into smaller, equally sized chunks, and buy Apple over time on some set schedule. It could be $100 a month for 10 months, or $100 every 2 weeks for 5 months, or $20 a week for 50 weeks. You get the picture. Let's say you choose to do $20 a week for 50 weeks. The result of this is that you smooth out price volatility or get closer to the average price over the time you're investing. When the price goes down, you buy more shares. When the price goes up, you buy less shares. At the end, your purchase price is the average of all the purchases you made.

So is this good? It depends. If the price goes up and only up, you would have been better off just investing your $1,000 at the very start. If the price goes up and down in equal amounts, it's basically be the same as if you had bought in at the start. If the price only goes down, you'd have been better off waiting until it's at the lowest point (but how would you know?).

Investing out of income

In our basic example above, you had your entire investment of $1,000 sitting and ready to go. For a lot of investors, we don't have cash sitting around burning a hole in our bank account. Our cash arrives every 2 weeks, when we get paid from work. If you fall into this group, dollar cost averaging can be a helpful strategy to keep you investing on a consistent schedule. If you dollar cost average instead of waiting until you have a lump sum of cash, you avoid finding yourself in the example scenario above. Say you want to invest 10% of your annual, after tax income. You could either wait till the end of the year, and then make your investments, or dollar cost average into the market by investing 10% of each paycheck.

Dollar cost averaging with Share

Share is built for dollar cost averaging. It's all we do. You can't go into Share and place a market order for a stock. There are lots of other places you can do that. We do dollar cost averaging because we think it meets the needs of many consumer investors. It's simple, you don't have to try to time the market, and it fits with how most people get paid. Here's how dollar cost averaging works with Share.

1. You create a strategy, which is a group of one or more stocks.
2. You choose how much you want to invest in that strategy per week.
3. Share will withdraw one month's worth of investment from your connected bank account (you can customize this schedule).
4. Share will invest your chosen weekly investment into your strategy every Monday.
5. After 4 weeks, the process repeats.

Ready to get started?

Get the App
Find us on...
Share Invest Inc. (“Share”) is an investment adviser registered with the Securities and Exchange Commission (“SEC”). Share’s investment advisory services are available only to residents of the United States in jurisdictions where Share is registered. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities or investment products. Registration with the SEC does not imply a certain level of skill or training.

Dollar cost averaging does not guarantee a profit or protect against a loss. Systematic investing involves continuous investments in securities, regardless of price-level fluctuations. There is no guarantee that any investment strategy will achieve its objectives.

Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Account holdings and other information provided are for illustrative purposes only and are not to be considered investment recommendations. The content on this website is for informational purposes only and does not constitute a comprehensive description of Share’s investment advisory services.

Fractional share trading allows a customer to buy and sell fractional share quantities and dollar amounts of certain securities. Fractional share trading presents unique risks and is subject to particular limitations that you should be aware of before engaging in such activity. Click here for more details.

Please refer to Share’s Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal.

Brokerage services are provided by Alpaca Securities LLC ("Alpaca"), member FINRA, a wholly-owned subsidiary of AlpacaDB, Inc. Clearing services are provided by Velox Clearing LLC (Velox) and Vision Financial Markets LLC (Vision). All three are members of the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash) per customer. Explanatory brochure available upon request or at www.sipc.org. All accounts and trade executions are powered by Alpaca's technology. Share and Alpaca are not affiliated and neither are responsible for the liabilities of the other.

View Alpaca's disclosures.

Contact Share at hi@tryshare.app.