DCA Dollar Cost Averaging

DCA (dollar cost averaging) means investing a fixed amount of money at regular intervals — say, €200 every month — regardless of what the market is doing. It is the most widely recommended entry strategy for long-term retail investors, and the reason is more psychological than mathematical.

How it works

With the same amount you buy more units when prices fall and fewer when they rise: your average purchase price smooths itself out. If you put €200 into an ETF trading at €50 one month (4 units) and €40 the next (5 units), your average price is not €45 but €44.4 — averaging systematically favours the cheap purchases.

The real advantage, though, is not that decimal: it is that DCA removes the worst decision in investing, which is deciding when. Nobody calls market bottoms consistently, and waiting "for the dip" has a terrible track record.

DCA versus investing a lump sum

If you have a large amount available, historical statistics favour investing it at once (markets rise more often than they fall, and being invested beats waiting). So why DCA? Because statistics are no comfort to someone who invests their savings the day before a 20% drop and panic-sells. DCA trades a little expected return for a much higher probability of — and a mediocre plan you follow beats an optimal plan you abandon.