Dollar-cost averaging
What it is: investing a fixed amount on a fixed schedule, regardless of price. A payroll deduction into a 401(k) is DCA whether you call it that or not.
The mechanism: a fixed dollar amount buys MORE shares when prices are low and fewer when high, so your average cost per share comes in below the average price.
The honest part most people skip: lump-sum investing beats DCA roughly two-thirds of the time, because markets rise more often than they fall. DCA is not the higher-returning choice.
So why do it?
• It removes the decision, and therefore the timing mistake
• It is what a salary naturally allows
• The regret of a lump sum invested a week before a crash makes people abandon the plan entirely — and abandoning the plan costs far more than the difference
Chart: fixed $1,000 monthly, shares acquired.