Dollar-Cost Averaging Explained — How It Works, DCA vs Lump Sum, and Real Historical Examples
Dollar-cost averaging (DCA) is one of the most widely recommended investing strategies for beginners and seasoned investors alike. The concept is simple: invest a fixed dollar amount at regular intervals regardless of what the market is doing, rather than trying to time your entry. When prices are high, your fixed amount buys fewer shares; when prices drop, it buys more. With the S&P 500 (SPY) trading at $685.99 near all-time highs and a P/E ratio of 27.62, many investors are understandably nervous about investing a large sum all at once. Dollar-cost averaging offers a psychologically comfortable alternative — and historical data shows it consistently builds wealth over time, even if it doesn't always maximize returns. This guide explains exactly how DCA works, compares it to lump-sum investing using real market data, and shows you how to implement an automated DCA strategy with today's tools.