Key takeaways

• Dollar-cost averaging (DCA) means investing a fixed amount at regular intervals, regardless of market conditions.

• It helps reduce the impact of short-term volatility and emotional decision-making.

• DCA encourages disciplined investing habits and supports long-term wealth building.

• It’s most effective when applied to diversified investments and maintained consistently over time.

Financial markets move constantly, and the stream of daily headlines can make investing feel uncertain. For many investors, the hardest part isn’t deciding what to buy – it’s deciding when to invest.

That’s where dollar-cost averaging (DCA) comes in. 

What is dollar-cost averaging?

DCA is the practice of investing a fixed amount of money at regular intervals – for example, weekly, fortnightly or monthly — regardless of how markets are performing.

When prices rise, your fixed amount buys fewer units; when prices fall, it buys more. Over time, this can smooth out the average purchase price of your investments, helping reduce the impact of short-term volatility on your portfolio.

Why it makes sense

1. It takes emotion out of investing.
   Market movements can tempt investors to buy or sell impulsively. A DCA approach helps you stay consistent through market highs and lows, focusing on a regular investing routine rather than reacting to every price swing.

2. It helps manage the risk of poor timing.
   Even the most active investors rarely predict market movements with complete accuracy. By investing steadily over time, you avoid the risk of making large investments at the wrong moment and instead build exposure gradually across market cycles.

3. It builds good habits.
   Regular investing encourages discipline. It turns saving and investing into a consistent habit that supports long-term portfolio growth – rather than something decided only when markets feel “safe.”

Things to keep in mind

While DCA can be an effective strategy, all investments carry risk and DCA does not guarantee returns or protect against loss. Some limitations include: 

• Rising markets can affect average purchase prices.
  When markets trend upward for an extended period, investing gradually can mean your later purchases occur at higher prices. This can reduce potential returns compared to investing the full amount earlier. 

• It doesn’t turn a poor investment into a good one.
  Regularly investing into a single company or sector that underperforms can increase your exposure to loss. If you’re using a DCA approach, consider spreading your investments across a mix of quality shares or diversified ETFs to help manage risk and smooth returns over time.

• It requires commitment.
  The strategy only works when maintained through all market conditions – especially when volatility challenges investor confidence.

Final thoughts

Dollar-cost averaging won’t eliminate all risk, but it can make investing more structured and better aligned with your long-term financial goals.

It’s a simple, disciplined approach that helps investors stay invested through all market conditions.