Dollar Cost Averaging (DCA)
Investing a fixed amount at regular intervals regardless of market conditions.
Definition
Dollar cost averaging (DCA) is an investment strategy where an investor divides the total amount to be invested across periodic purchases of a target asset to reduce the impact of volatility on the overall purchase. When prices are low, the fixed investment amount buys more shares; when prices are high, it buys fewer shares. This naturally lowers the average cost per share over time. Research shows lump sum investing outperforms DCA about two-thirds of the time in rising markets, but DCA significantly reduces the risk of investing at a market peak. Most 401k contributions are inherently a DCA strategy.
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Compound Interest
Interest calculated on both the initial principal and accumulated interest from previous periods.
TradingVolatility
A statistical measure of the dispersion of returns for a given security or market index.
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The process of identifying, assessing, and controlling threats to an investment portfolio.