Dollar-Cost Averaging (DCA) Definition and Mechanics - Dollar-cost averaging involves investing a fixed amount of money at regular intervals, regardless of market conditions [1] - This strategy promotes consistency in investing rather than focusing on specific investment choices [1] - It can be implemented manually or through automated recurring investments in stocks, ETFs, or mutual funds [3] Benefits of Dollar-Cost Averaging - DCA helps establish a consistent investing routine and a strong financial foundation [5] - It can potentially lower the average cost of investments by buying more shares when prices are low and fewer when prices are high [9][10] - DCA can help remove emotion from investing, promoting adherence to a plan and reducing the temptation to time the market [7][8] - Staying invested in the market for the long term is generally better than trying to time the market [8] Considerations and Potential Drawbacks - DCA does not guarantee profit or protect against loss in declining markets and requires continuous investment [7] - If a lump sum is available and the market rises, DCA may result in missing out on potential growth [10] - Regular transactions can lead to increased commission or fee charges from brokerage companies [11] - DCA requires a commitment to consistent investing [11] Practical Application - Many 401(k) plans utilize dollar-cost averaging through automatic paycheck contributions [2] - Setting up recurring investments allows for automated share purchases of stocks, ETFs, or mutual funds [3] - Fidelity offers resources to help investors set up recurring investments [12] Illustrative Example - Investing $100 per month into an S&P 500 Index fund with an average 7% return could result in $7,200 after five years [5] - Continuing this investment for ten years could potentially double the money to $17,300 [6]