Dollar-cost averaging (DCA).

In plain English

Dollar-cost averaging means you commit to investing a fixed dollar amount (say, $200) on a regular schedule (say, every two weeks), no matter what the market is doing. When prices are high, your $200 buys fewer shares. When prices drop, your $200 buys more shares. Over time, you end up with a reasonable average price, and you never have to guess when to invest.

01Why it matters

It removes the hardest part of investing: timing. Most people who try to time the market end up buying when things feel safe (which is when prices are highest) and selling when things feel scary (which is when prices are lowest). DCA forces the opposite behavior, automatically.

02The math, step by step

You set up a $200 automatic investment every payday into an index fund. In month 1, the price is $50/share, so your $200 buys 4 shares. In month 2, the price drops to $40, so your $200 buys 5 shares. Month 3, $50 again, 4 shares. You bought 13 shares for $600. Your average cost is $46.15/share, not the simple average of $46.67. The dip helped you, automatically, even though it felt scary at the time.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT