What Is Dollar-Cost Averaging?
Dollar-cost averaging means investing a fixed amount at regular intervals, whatever the price. How it works, what the research says about it versus investing a lump sum, and when each makes sense.
In one sentence
Dollar-cost averaging. Investing equal amounts at regular intervals, such as every month, regardless of the price.
How it works
You invest the same dollar amount on a schedule, such as every month, regardless of the price. When prices are low, that amount buys more shares; when they're high, it buys fewer.
| Month | Price | Shares bought |
|---|---|---|
| 1 | $30 | 10 |
| 2 | $25 | 12 |
| 3 | $20 | 15 |
| 4 | $25 | 12 |
| 5 | $30 | 10 |
| Total | $1,500 invested | 59 shares |
The average cost per share is $1,500 ÷ 59 = $25.42, below the average price of $26, because more shares were bought when prices were low.
Versus a lump sum
Investing from each paycheck is dollar-cost averaging by necessity, and it's sensible. The harder question is what to do with a lump sum you already have. In a 2023 paper, Vanguard researchers compared investing a lump sum at once with spreading it out over time, using historical and simulated market data, and found that the lump sum outperformed roughly two-thirds of the time. They noted that over 1976 to 2022, US stocks beat cash 76% of the time, so money waiting to be invested usually missed out.1 Spreading it out mainly buys peace of mind against investing just before a fall.
Learn it properly
- Dollar-Cost Averaging, Lump Sum, or Scaling In?Part 5: Building a Portfolio · Free
Notes and sources
- Vanguard Research, Megan Finlay and Josef Zorn. Cost averaging: Invest now or temporarily hold your cash? (February 2023). Checked 2026-10-05. Back to text