Dollar-Cost Averaging - DCA

Filed Under » , ,
Dictionary Says

Definition of 'Dollar-Cost Averaging - DCA'

The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.

Also referred to as a "constant dollar plan."
Investopedia Says

Investopedia explains 'Dollar-Cost Averaging - DCA'

Eventually, the average cost per share of the security will become smaller and smaller. Dollar-cost averaging lessens the risk of investing a large amount in a single investment at the wrong time.

For example, you decide to purchase $100 worth of XYZ each month for three months. In January, XYZ is worth $33, so you buy three shares. In February, XYZ is worth $25, so you buy four additional shares. Finally, in March, XYZ is worth $20, so you buy five shares. In total, you purchased 12 shares for an average price of approximately $25 each.

In the United Kingdom, it is known as "pound-cost averaging."

Related Video for 'Dollar-Cost Averaging - DCA'

Articles Of Interest

  1.

    Reinvesting Capital Gains In Leveraged Portfolios

    Don't get forced into action. Learn how to plan properly to avoid making rash decisions.

  2. Dollar Cost Averaging

    Discover how this investing technique can lessen the risk of investing a large amount of money in a single investment.

  3. Choosing Between Dollar-Cost And Value Averaging

    These are two investing practices that seek to counter our natural inclination toward market timing by canceling out some of the risk.

  4. Start Investing With Only $1,000

    Find out what fees and restrictions need to be considered before investing $1,000.

  5. Two Roads: Debt Or Financial Independence?

    A higher income won't make you richer - unless you learn to live on less.

  6. Dollar-Cost Averaging With ETFs

    If you are investing small amounts regularly into an exchange-traded fund, be sure to do it right.

  7. Buying Stocks When The Price Goes Down: Big Mistake?

    Averaging down is a trumpeted strategy that has merit, but when it is used carelessly, it can amount to throwing money away.

  8. 5 Disastrous Financial Moves We Can't Seem To Avoid

    These money errors are all too common. Make sure you know how to avoid them.

  9. 6 Problems With 401k Plans

    If you pay attention to the problems here, you will be able to avoid the negative effects and meet your retirement goals.

  10. The Perks Of Dividend Reinvestment Plans

    These plans offer shareholders a way to directly invest in some of the top companies without the commissions.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Zomma

    An options greek used to measure the change in gamma in relation to changes in the volatility of the underlying asset.

  2. Yield Elbow

    The point on the yield curve indicating the year in which the economy's highest interest rates occur. The yield elbow is the peak of the yield curve, signifying where the highest interest rates occurred.

  3. Xenocurrency

    A currency that trades in markets outside of its domestic borders.

  4. Wanton Disregard

    A standard of severe negligence. Wanton disregard is a very serious accusation that indicates that a person behaved extremely recklessly.

  5. Ultra ETF

    A class of exchange-traded funds (ETF) that employs leverage in an effort to achieve double the return of a set benchmark.

  6. Toehold Purchase

    A purchase of less than 5% of a target company's outstanding stockmade by an acquiring company. A toehold purchase of just under 5%, while not a significant stake in a firm, allows the shareholders a "toe-holds" grip on the company and its decision making.
Trading Center
http://sp.fastclick.net/ad/tr/10858-64082-15546-0?mpt=46845cc539f36b249e57b4d93374ccdd