The practice of investing a fixed sum at regular intervals regardless of market price — buying more shares when prices are low and fewer when prices are high, smoothing the average cost basis.
Deeper Explanation
DCA is most valuable for investors who would otherwise attempt to time the market — and repeatedly fail. By automating the investment decision (a fixed amount on the first of each month, regardless of market conditions), DCA removes the emotional component of the buy decision. Buffett has endorsed DCA specifically for passive index fund investors: a regular commitment to a low-cost index fund over 30+ years will produce better outcomes than most active strategies for most people. The mathematical advantage of DCA over lump-sum investing is modest in up-trending markets (lump sum wins on average) but the behavioural advantage — removing the anxiety of timing — is significant and persistent for most investors.
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