Dollar Cost Averaging Calculator
Compare dollar cost averaging (DCA) vs lump sum investing. See how regular investments can reduce volatility risk and build long-term wealth.
What is Dollar Cost Averaging?
Dollar cost averaging (DCA) is an investment strategy where you invest a fixed amount at regular intervals, regardless of market conditions. This approach:
📉 Reduces Timing Risk
No need to "time the market" - you buy at various price points
🎯 Builds Discipline
Automate investing and remove emotional decisions
📊 Averages Your Cost
Buy more units when cheap, fewer when expensive
Investment Projection
📊 Dollar Cost Averaging
💰 Lump Sum
* Historically, lump sum investing outperforms DCA ~68% of the time due to earlier market exposure. However, DCA reduces risk and is psychologically easier.
DCA vs Lump Sum Comparison
✅ When DCA Makes Sense
- • Regular income - investing from salary each month
- • Market volatility - reduces risk during uncertain times
- • Emotional investor - removes timing decisions
- • New investors - builds good habits
- • Large inheritance - worried about investing all at once
- • Retirement savings - super contributions are DCA
💰 When Lump Sum Wins
- • Long time horizon - markets trend up over time
- • Low market valuations - after major corrections
- • Windfall/bonus - maximize time in market
- • High cash drag - uninvested cash earns less
- • Disciplined investor - won't panic sell
- • Tax efficiency - single purchase = simpler CGT
How DCA Reduces Average Cost
Example: Investing $500/month in an ETF over 4 months with varying prices:
| Month | Unit Price | Investment | Units Bought |
|---|---|---|---|
| January | $100 | $500 | 5.00 |
| February | $80 ↓ | $500 | 6.25 |
| March | $60 ↓ | $500 | 8.33 |
| April | $90 ↑ | $500 | 5.56 |
| Total | Avg: $82.50 | $2,000 | 25.14 units |
Average cost per unit: $79.55 (lower than the average price of $82.50). DCA bought more units when prices were low!