Strategies · A practical guide
DCA: make the purchase rule explicit
Are you investing new income regularly or delaying an available lump sum?
Educational content · Updated · Prepared with AI assistance
01
Define the schedule
Dollar-cost averaging invests equal amounts at regular intervals despite market fluctuations. Lower prices buy more units and higher prices buy fewer. Write the amount, frequency, asset, and review rule before looking at a recent price chart.
02
Distinguish two cash-flow problems
Investing each paycheck as it arrives differs from holding an already available lump sum in cash and gradually entering. The second choice also changes the time your money spends invested. Compare that opportunity cost, cash yield, and your ability to stick with the plan.
03
Calculate cost from quantities
Average cost is total purchase cost divided by total units, with a clearly stated treatment of fees. It is not the simple average of the quoted purchase prices. A lower average entry price says nothing by itself about the future value of the asset.
04
Keep a reason to stop or revise
An automatic schedule is not a substitute for checking the investment, costs, concentration, and your cash needs. Repeated buying can magnify exposure to a deteriorating asset. Regular contributions do not guarantee a profit or prevent loss.
Hypothetical worked example
Three equal $100 purchases, with fractional units available
| Purchase | Price | Units bought | Amount |
|---|---|---|---|
| 1 | $10 | 10 | $100 |
| 2 | $5 | 20 | $100 |
| 3 | $20 | 5 | $100 |
What the example shows: Total cost is $300 for 35 units: $8.5714 per unit before fees, rather than the simple price average of $11.6667. At a hypothetical later price of $6, those units are worth $210: a $90 unrealized loss despite the buying schedule.
Try before you reveal
Check your understanding
Why is the average cost below the simple average of $10, $5, and $20?
Show the explanation
Equal-dollar purchases bought more units at the lower price. Quantity weights, not the number of purchase dates, determine the cost per unit.
Put it to work
- Separate recurring income from an available lump sum.
- Choose the amount and schedule deliberately.
- Include costs and record units bought.
- Revisit the investment thesis and concentration.
Sources and boundaries
Sources support the underlying concepts. The examples, exercises, and research questions are this site’s educational illustrations. They are not live quotes, return forecasts, or personalized recommendations. Sources checked September 27, 2026.