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What is dollar-cost averaging?
Dollar-cost averaging is a method of buying an asset with equal amounts of money at regular intervals, regardless of the price at the time. Because the amount is fixed, each purchase buys fewer units when the price is high and more when it is low.
What it means for you
It is a buying schedule, not a protection against loss: if the price falls and stays down, every purchase loses value. Each purchase is a separate tax lot with its own cost basis to record, and many platforms charge a fee on each recurring buy, which weighs more on small amounts.
How it works
You invest the same amount at each interval, so the number of units bought changes with the price: more when it is low, fewer when it is high. Over many purchases that can bring the average cost per unit below the simple average of the prices paid. FINRA notes the trade-off: spreading money out gradually has lower risk but often produces lower returns than investing a lump sum at once, especially over long periods, and paying a fee on every purchase can raise total costs. It removes the need to pick a moment; it does not prevent losses if prices fall and stay down.
An example
Say you buy 100 dollars-worth each month for three months at 10, 5 and 20 dollars. You get 10, 20 and 5 units: 35 units for 300 dollars, an average of about 8.57 per unit, below the 11.67 average of the three prices.
Source: FINRA: Dollar-Cost Averaging · checked 4 October 2026
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Educational content, not financial advice. Written by hand and checked against the source named above. Something wrong? Tell us and we reply within two business days.