What is Dollar Cost Averaging (DCA)? đ¨
Dollar cost averaging refers to the practice of investing fixed amounts at regular intervals (for instance, $20 every week). This is a strategy used by investors that wish to reduce the influence of volatility over their investment and, therefore, reduce their risk exposure.
The term âdollar cost averagingâ was coined because such a strategy opens the potential for reducing the average cost of the total amount of assets purchased. As a result, the investor could be buying less of an asset while the price is relatively high, and more units of that asset as the price goes lower. In other words, the investor would enter in a position gradually, instead of doing it on a single move.
Example if you have $100
You should buy like this
$20+$20+$30+$30 = $100