DCA: dollar-cost averaging, its pros and limitations

DCA (dollar-cost averaging) means regularly buying an asset for a fixed amount at equal intervals, for example every week or every month, regardless of the current price. When the price is low, the same amount buys more units, and when it is high, fewer, so the average purchase price ends up somewhere in the middle.

DCA reduces the risk of picking a bad moment for a one-time entry and keeps emotions in order, but it guarantees nothing: if an asset keeps losing value or loses its purpose, only your loss grows. In a long, strong uptrend, a lump-sum purchase at the start is sometimes more advantageous. DCA should not be confused with “averaging down,” i.e. adding to a losing position without a plan.