Dollar-cost averaging: A smart investing strategy for any market
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What is dollar-cost averaging (DCA)?
Dollar-cost averaging (DCA) is a simple investing strategy where you invest the same amount of money at regular intervals — like every paycheck or once a month — no matter what the price is.
📈When prices are low, you buy more shares.
⬇️ When prices are high, you buy fewer.
This takes the guesswork out of market timing and helps you build your investments steadily over time.
It’s a smart approach for both beginners and experienced investors and you can use it on any trading platform or with any robo advisor.
Dollar-cost averaging vs. lump-sum investing: Which is better?
When investing, you can either spread your money out over time (dollar-cost averaging or DCA) or invest it all at once (lump-sum investing).
DCA means putting in a fixed amount at regular intervals, while lump-sum investing puts all your money into the market right away.
Each approach has its advantages and drawbacks, depending on your goals and risk tolerance.
Pros and cons of DCA
Pros
- Reduces impact of volatility: By investing a fixed amount regularly, you purchase more shares when prices are low and fewer when prices are high, potentially lowering your average cost per share.
- Encourages discipline: Regular investments promote a consistent saving habit, making it easier to stay committed to your financial plan.
- Mitigates emotional investing: DCA lessens the temptation to time the market, reducing the likelihood of making impulsive decisions based on market fluctuations.
Cons
- Potential for lower returns: In consistently rising markets, DCA might result in lower returns compared to investing a lump sum upfront.
- Delayed full investment: Gradually investing means a portion of your funds remains uninvested for a period, possibly missing out on market gains.
Pros and cons of lump sum investing
Pros
- Immediate market exposure: Investing all at once allows your entire capital to benefit from potential market appreciation from the outset.
- Historically higher returns: Studies indicate that lump-sum investing often outperforms DCA, especially during prolonged bull markets.
Cons
- Market timing risk: Investing a large amount just before a market downturn can lead to immediate losses.
- Emotional discomfort: The fear of investing at the "wrong" time can cause anxiety, potentially leading to second-guessing or regret.
When lump-sum investing may be more beneficial
Lump-sum investing tends to be advantageous in rising markets.
By investing the entire amount upfront, you maximize exposure to market gains.
Historical data shows that lump-sum investing outperformed DCA approximately 68% of the time.
Psychological benefits of dollar-cost averaging
DCA offers psychological comfort by reducing the pressure of investing a large sum at once.
It minimizes the risk of immediate regret if the market declines after investing and helps you stay committed to their strategy without being swayed by short-term market movements.
I know the data suggests lump-sum is better, but I prefer to automate my investments and see the deposit hit my cash account in my online brokerage every week. The money simply grows and I don't worry about the volatility, the ups and downs, of the market — I don't plan to use this money until I retire.
Lump sum vs dollar cost average chart
In the left chart, the comparison looks at two strategies: investing $10,000 all at once at the start of each period versus spreading the $10,000 evenly over monthly instalments. In every case, the lump-sum approach performed better. Since markets tend to rise over time, the DCA investor often ended up buying at higher average prices.
In the right chart, let's examine how a DCA investor and a lump-sum investor fared during the global financial crisis by analyzing two six-month periods—one with falling markets and one with rising markets. For this comparison, we assume:
- Each investor starts with $50,000 in cash.
- The DCA investor spreads their investment evenly over six monthly installments.
- The lump-sum investor invests the full $50,000 on the first day of the six-month period.
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Key takeaways
During falling markets: The DCA strategy helped cushion losses compared to lump-sum investing. Though not shown in the chart, the DCA investor recovered to break even just three months after the market bottom. In contrast, the lump-sum investor had to wait another year and a half for their portfolio to surpass its initial value.
During rising markets: The lump-sum investor saw stronger returns in the six months following the market bottom. However, investing a large sum all at once during such uncertain times would have been daunting, given the economic conditions. While the DCA investor didn’t match the lump-sum gains, they still achieved solid returns with a steadier, less stressful approach.
Best dollar-cost averaging strategies
Dollar-cost averaging (DCA) is a smart way to build wealth over time while reducing the stress of market fluctuations. But to make the most of it, you need the right approach.
Automate your dollar-cost averaging with a brokerage or robo advisor
Most online brokerages and robo-advisors make it easy to automate your DCA strategy. Here’s how:
- 1 Set up recurring deposits: Link your bank account and schedule automatic transfers to your investment account.
- 2 Choose your investments: Select ETFs, index funds, or stocks you want to invest in. With a robo advisor, you set your risk tolerance and they do the rest for you automatically.
- 3 Enable auto-investing: Many platforms let you set up recurring purchases, ensuring your money is invested automatically at your chosen frequency.
- 4 Monitor and adjust: Check your portfolio occasionally to ensure it aligns with your financial goals, but avoid reacting emotionally to short-term market swings.
Here are more ways to optimize your DCA strategy for long-term success.
Advantages of dollar-cost averaging
DCA isn’t just about convenience — it offers real benefits:
✅ Reduces the impact of volatility: By investing consistently, you avoid putting all your money in at a peak.
✅ Eliminates emotional decision-making: No need to stress about market fluctuations—DCA keeps you on track.
✅ Encourages long-term investing habits: Regular investments build discipline and help grow wealth steadily.
✅ Works in all market conditions: Whether the market is up or down, your money keeps working for you.
If you're investing for the long-term, DCA is one of the simplest and most effective strategies to stay invested without second-guessing the market.
Use a dollar-cost averaging calculator to plan your strategy
Want to see how DCA can impact your portfolio? Use a dollar-cost averaging calculator to compare different investment schedules and potential returns. These tools can show you:
- How different DCA frequencies affect your investment growth.
- The average cost per share based on historical market fluctuations.
- The potential long-term benefits of steady investing.
Real-world examples of dollar-cost averaging
Dollar-cost averaging (DCA) is more than just theory—it’s a proven strategy that investors use to build wealth while reducing risk. Here’s how it works in real life.
Let’s say you invest $100 per month into an exchange-traded fund (ETF) that tracks the stock market. Some months, the ETF price is higher, and you buy fewer shares. Other months, the price is lower, and you buy more shares. Over time, this approach can lead to a lower average purchase price per share compared to investing all at once.
Month
Amount Invested
ETF Price
Shares Purchased
Jan
$100
$10
10
Feb
$100
$12
8.33
Mar
$100
$8
12.5
Apr
$100
$9
11.11
May
$100
$11
9.09
Total
$500
$10 avg
50.03 shares
Instead of trying to time the market, you steadily accumulate shares, buying more when prices are low and less when prices are high—resulting in a lower average cost per share than if you had invested a lump sum at the highest price.
To see how DCA compares to lump-sum investing, let’s assume you had $500 to invest at the start of the year.
Strategy
Total Invested
Avg. ETF Price
Total Shares Bought
Lump-Sum Investing (All at Once in January)
$500
$10
50
Dollar-Cost Averaging (Spread Over 5 Months)
$500
$10 (blended)
50.03
In this scenario, both strategies result in similar share accumulation, but the real advantage of DCA is psychological—you don’t have to worry about buying at the wrong time or stressing over market dips.
In a volatile market, DCA helps smooth out the impact of price fluctuations, while a lump-sum investor may experience short-term losses if the market declines right after they invest.
Meet Sarah, a first-time investor who wanted to start investing but was worried about market volatility. She had $12,000 in savings and considered investing it all at once but feared buying at the wrong time.
Instead, she chose dollar-cost averaging by investing $1,000 per month into an index fund. Over the course of a year:
✅ She bought more shares when the market dipped and fewer when it was high
✅ She avoided the stress of market timing
✅ She built discipline and confidence as an investor
By the end of the year, Sarah’s average cost per share was lower than if she had invested the full $12,000 on day one — all while feeling in control of her investments.
Option 1: Take $1 million today
- If you invest the full $1 million wisely, you can generate significant returns over time.
- Assuming an 8% annual return (a reasonable long-term stock market average), your $1 million could grow to $4.66 million in 20 years.
- You have full control over how you invest or spend the money.
Option 2: Take $10,000 a month for 20 years
- You’d receive $2.4 million in total over 20 years.
- However, you don’t get the benefit of compounding early on, since you’re receiving money gradually.
- If you invest each $10,000 instalment, you can still grow your wealth, but not as quickly as having the lump sum upfront.
Which is better?
- $1 million lump sum today (invested at 8% annually) → $4.66 million
- $10,000 per month for 20 years (invested at 8% annually) → $5.93 million
If you can invest consistently and stay disciplined, the monthly investment strategy results in more money over 20 years.
However, taking $1 million upfront gives you more flexibility and potential for higher returns if invested wisely.
So, the monthly investment wins in total value, but the lump sum offers more control and earlier compounding benefits.
Ultimately, the best choice depends on your financial discipline, investment knowledge, and risk tolerance. If you can invest and grow your money, the lump sum is the way to go.
How to get started with dollar cost-averaging?
Where to invest: best accounts for DCA
Depending on your financial situation, consider using these accounts for dollar-cost averaging:
✅ TFSA (Tax-Free Savings Account) – No tax on gains or withdrawals, making it ideal for long-term investing.
✅ RRSP (Registered Retirement Savings Plan) – Tax-deferred growth, perfect for retirement savings.
✅ Taxable brokerage Account – Best if you've maxed out your TFSA/RRSP or need flexibility for withdrawals.
Best platforms for dollar-cost averaging in Canada
These brokerages make it easy to automate your investments:
| Wealthsimple | Questrade | TD Easy Trade™ |
|---|---|---|
|
|
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| Offers commission-free ETF purchases and automatic contributions. | Offers commission-free ETF purchases and automated deposits | Allows no-commission ETF investing with an easy-to-use mobile app |
| Wealthsimple review | Questrade review | TD Easy Trade review |
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