What is Dollar Cost Averaging? A Complete Guide
Dollar Cost Averaging (DCA) is an investment strategy where you invest a fixed amount of money at regular intervals, regardless of the asset's price. It's one of the most effective approaches for building long-term wealth while managing risk.
How DCA Works
Instead of trying to time the market and invest everything at the "perfect" moment, DCA spreads your investment over time:
- Fixed Amount: You invest the same dollar amount each period
- Regular Schedule: Weekly, bi-weekly, or monthly
- Price Agnostic: You buy regardless of whether prices are up or down
A Simple Example
Let's say you invest $100 monthly in Bitcoin over 4 months:
| Month | BTC Price | BTC Purchased |
|---|---|---|
| 1 | $50,000 | 0.00200 |
| 2 | $40,000 | 0.00250 |
| 3 | $35,000 | 0.00286 |
| 4 | $45,000 | 0.00222 |
| Total | $400 | 0.00958 BTC |
Average cost: $41,753/BTC — better than the starting price of $50,000!
Why DCA Works
Removes Emotion
No more panic selling during dips or FOMO buying at tops. You follow a system.
Reduces Timing Risk
Nobody can consistently time the market. DCA means you don't have to try.
Averages Your Cost
You buy more when prices are low, less when high. This naturally optimizes your average entry.
Builds Discipline
Consistent investing becomes a habit. Small amounts compound into significant wealth over time.
DCA is Perfect For Crypto
Cryptocurrency is highly volatile, making DCA particularly effective. When prices crash 30%, your fixed investment buys significantly more coins. When they recover, you benefit from the lower average cost.
Calculate Your DCA Returns
Use our calculator to see how DCA would perform for any cryptocurrency over any time period.
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