Dollar-Cost Averaging

Dollar-cost averaging means committing a set sum at set intervals — say $500 on the first of every month — no matter what the market is doing. The fixed dollar amount buys more shares when prices are low and fewer when they are high, so your average cost per share lands below the average price over the period.

Its real value is behavioral. It removes the need to decide when to buy, which is where most individual investors do themselves damage, and it makes investing automatic.

Anyone contributing to a 401(k) from each paycheck is already dollar-cost averaging without calling it that.

Worth knowing: when compared head-to-head with investing a windfall all at once, lump-sum investing has historically produced higher returns more often, simply because markets rise more than they fall. Dollar-cost averaging trades some expected return for a smoother ride and fewer regrets.