What Is Dollar Cost Averaging?
Dollar cost averaging (DCA) means buying a fixed dollar amount of a stock regularly, regardless of price. When prices are low, you buy more shares; when high, fewer. Over time, this averages out your cost per share and reduces the impact of volatility.
How Average Cost Is Calculated
Average cost = Total amount invested ÷ Total shares purchased. For example, buying 10 shares at $150 and 15 shares at $130: total invested = $1,500 + $1,950 = $3,450. Total shares = 25. Average cost = $3,450 ÷ 25 = $138 per share.