**Dollar-cost averaging (DCA)** means investing a fixed amount of money at regular intervals (e.g., $500/month into an index fund), regardless of price.
**Why it works:** - When prices are low, your fixed amount buys more shares - When prices are high, you buy fewer shares - Over time, your average cost per share is lower than the average price
**Example:** Month 1: price $100 → buy 5 shares Month 2: price $50 → buy 10 shares Month 3: price $200 → buy 2.5 shares Average price: $116.67 | Average cost: $100
**Should you use it?** Yes, if: - You're investing regularly from a salary (this is just what most 401k contributions do automatically) - You're anxious about timing the market - You don't have a large lump sum to invest
If you DO have a lump sum, research shows lump-sum investing beats DCA ~67% of the time. But DCA reduces regret and is psychologically easier.