Dollar-Cost Averaging (DCA)

Dollar-Cost Averaging (DCA) is an investment strategy where an investor divides their total investment amount into periodic purchases of a target asset, regardless of its price. By buying at regular intervals (weekly, monthly), the investor automatically buys more shares when prices are low and fewer when prices are high.

The main benefit of DCA is that it removes the emotional pressure of trying to "time the market." A lump-sum investor must decide the optimal entry point, which is notoriously difficult even for professionals. A DCA investor avoids this problem by spreading purchases over time.

Research shows that Lump Sum investing tends to outperform DCA about two-thirds of the time, because markets rise more often than they fall. However, DCA significantly reduces the risk of investing a large sum right before a major market crash—which is psychologically devastating for many investors.

For European retail investors who receive a monthly salary, DCA is the natural strategy: invest a fixed percentage of your paycheck each month into accumulating UCITS ETFs (like VWCE or CSPX). Over a 20-30 year period, this disciplined approach produces substantial wealth through the power of compounding.