Want to know how does dollar cost averaging works? I am doing a cost averaging in mutual funds and stock market investing. Today we will talk about dollar cost averaging, what it is all about, how does it work, the DCA benefits and the risks accompanies in dollar cost averaging.Few years ago, when I learned stock market investing and mutual funds, I asked myself, which is better. To invest in lump-sum or to invest using DCA?
- Lump-Sum – a huge or large amount of money to be invested one time. This will work to a “buy and hold investing” strategy.
- Dollars Cost Averaging (DCA) – investing money in a regular interval (example every month, every quarter or every year).
How Does Dollar Cost Averaging Works?
DCA Procedures and Benefits
The procedures in dollar cost averaging is simple. Decide how much money you want to invest per month or per quarter. Decide where you want to invest DCA. Dollar cost averaging will work in mutual funds and stocks market investing.
The benefits of investing using dollar cost averaging are as follows;
- Buy more shares if the price per shares are low
- Buy few shares if the price per share are high
- The risk is moderate since you are just investing small amount of money regularly compare to investing large amount of money.