If you’ve ever worried about investing at the “wrong time,” you’re not alone. Many beginners hesitate to start because they’re waiting for the perfect moment. But here’s the truth: there’s no perfect time to invest. That’s where Dollar-Cost Averaging (DCA) comes in—a simple strategy that can reduce risk, take the stress out of investing, and help you grow your wealth steadily over time.
What Is Dollar-Cost Averaging?
Dollar-Cost Averaging is an investing strategy where you consistently invest a fixed amount of money on a regular schedule, no matter what’s happening in the stock market.
Instead of trying to guess the best time to buy (aka “timing the market”), you invest the same amount whether prices are high, low, or somewhere in between. Over time, this approach helps you buy more shares when prices are low and fewer shares when prices are high—automatically balancing out the price you pay per share.
A Quick Example:
Let’s say you invest $200 every month into an S&P 500 ETF.
- If the price is $50/share in one month, you’ll buy 4 shares.
- If the price drops to $40/share the next month, you’ll buy 5 shares.
- If it rises to $66/share, you’ll get about 3 shares.
Over time, you’ll have more shares bought at lower prices and average out the cost you paid.
Why Dollar-Cost Averaging Works for Beginners
For most beginner investors, emotion is the biggest obstacle to success. When markets drop, it’s tempting to panic. When they surge, it’s tempting to buy high. DCA removes those emotional decisions.
Here’s why DCA is a smart strategy:
- Reduces the risk of bad timing: You avoid dumping a large sum of money into the market at the wrong time.
- Builds good investing habits: You stay consistent and keep investing regularly, even during market downturns.
- Makes investing stress-free: You don’t have to obsess over whether prices are high or low—you’re always investing.
- Encourages long-term thinking: You focus on the process, not the day-to-day ups and downs.
How to Start Dollar-Cost Averaging (Step-by-Step)
Ready to put DCA into action? Here’s how to get started:
1. Decide How Much to Invest
Pick an amount that fits comfortably into your budget. This could be $25 per week, $100 every two weeks, or $200 per month. Pro tip: Start small, and increase the amount as your confidence and income grow.
2. Pick Your Investment
Most beginners use index funds or ETFs because they’re diversified, low-cost, and simple. Popular choices include:
- S&P 500 ETFs
- Total Stock Market Index Funds
- Dividend Growth ETFs (if you prefer dividends)
3. Choose How Often You’ll Invest
Decide on your schedule: weekly, biweekly, or monthly. Most people align this with payday.
4. Automate Your Contributions
Set up automatic deposits through your brokerage account. This way, your investments happen on autopilot—and you never have to think about it.
5. Stay Consistent
Stick with it. Whether the market is soaring or sinking, stay on your schedule. Remember, consistency wins in the long run.
Real-Life Example of Dollar-Cost Averaging
Let’s say you invest $100 every month in a Total Stock Market Index Fund:
- Month 1: Price is $50/share → you buy 2 shares
- Month 2: Price is $40/share → you buy 2.5 shares
- Month 3: Price is $55/share → you buy 1.82 shares
Over time, you’ve invested consistently—buying more when the price is low and fewer when it’s high. Your average cost per share levels out, and you’re less affected by short-term market swings.
Common Questions About Dollar-Cost Averaging
Is Dollar-Cost Averaging Better Than Lump Sum Investing?
If you have a large amount of cash to invest all at once, studies show lump sum investing can have higher long-term returns. But for most beginners (who are investing from each paycheck), DCA is easier, less stressful, and builds the habit of consistent investing.
What If the Market Drops After I Start?
That’s actually a good thing with DCA! You’ll buy more shares when prices are lower, setting yourself up for bigger gains when the market recovers.
Can I Do Dollar-Cost Averaging With Any Investment?
Yes! You can DCA into stocks, ETFs, mutual funds, and even cryptocurrency (if that’s your thing). For beginners, low-cost index funds and ETFs are the simplest place to start.
Dollar-Cost Averaging is one of the simplest and most effective ways to start investing. It removes the pressure of timing the market, keeps you consistent, and helps you grow your investments over time.
If you’re ready to start, choose an amount, pick an investment, and set up your automatic contributions today. Need help building your investing habit? Use the Fidelity 52-Week Money Challenge to fund your investing plan.
