What is Dollar-Cost Averaging (DCA)?
Dollar-cost averaging is an investment strategy where you invest a fixed amount of money at regular intervals (e.g., $200 every month) into a particular investment, regardless of the price. It's the definition of "automating your investing."
How Does DCA Work?
By investing the same amount of money each time, you automatically buy more shares when the price is low and fewer shares when the price is high. Over time, this can lead to a lower average cost per share than if you had tried to invest a lump sum all at once.
Simple Example: You decide to invest $100 each month into an ETF.
- Month 1: The price is $10/share. Your $100 buys 10 shares.
- Month 2: The price drops to $5/share. Your $100 buys 20 shares.
- Month 3: The price rises to $12.50/share. Your $100 buys 8 shares.
After 3 months, you've invested $300 and own 38 shares. Your average cost per share is $7.89 ($300 / 38 shares), which is lower than the average price of $9.17 over the period.
Why is DCA a Good Strategy for Beginners?
- Removes Emotion: It takes the guesswork and fear out of investing. You don't have to worry about whether it's the "right" time to buy. The system makes the decision for you.
- Reduces Risk: It mitigates the risk of investing a large sum right before a market downturn.
- Builds Discipline: It turns investing into a consistent, manageable habit.
The Moneko Connection
DCA is a disciplined investment strategy that focuses on growing your assets over time. This is a key component of increasing your net worth—a metric that is tracked seamlessly in the Moneko app. By automating your investments with DCA, you are directly fueling the growth of the "Assets" side of your net worth equation.