What is dollar‑cost averaging?

Investing can seem overwhelming for a lot of families. You’re already busy working, raising kids, running the household, so how can you find time to invest—and to make sure you’re investing at just the right time? 

That’s where dollar-cost averaging (DCA) comes in. DCA is a relatively simple strategy that basically means that you invest the same amount of money at the same time intervals, no matter what happens in the stock market. 

How DCA works

Investments can change in value—up or down—every single day. DCA allows investors to naturally take advantage of these fluctuations without having to constantly watch the markets. 

An example of DCA

Let’s say you decide to invest $100 on the 15th of every month. Let’s follow along with a simple, hypothetical example to illustrate how DCA might work:

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A commitment to DCA allowed you to buy more shares of the investment as the cost per share went down. So, even though the price of the investment never went higher than its original price, your total investment of $500 grew to $1,000 at the end of the example. For long-term investors, knowing that they are accumulating more shares is more important than the day-to-day price changes of that investment. 

This is, of course, a simplified example, and there is no guarantee that investments will go up over time, but it helps to understand the power of the simplicity of dollar cost averaging.

Why investors use DCA

Here are just a few reasons why investors like to use DCA. 

• Saves time and energy. Because you’re automating your investments, you don’t have to remember to manually invest every month, nor do you need to follow the stock market closely. You simply set it and forget it. With a platform like Greenlight, the #1 family finance and safety app, families can automate investing* for their kids or teens, making regular contributions without lifting a finger.

• Avoids the stress of trying to time the market. A big investment myth is that you need to get in at the perfect time. Believing this can cause stress and lead to missed wealth-building opportunities, especially since it would be pretty hard to know exactly what the perfect time looks like. Waiting to time the market could have cost the example investor a 100% return. DCA naturally allows you to invest at good times without stressing about figuring out when that might be.

• Takes emotions out of the equation. The example investor could have panicked when the investment dropped to $10 or $5 per share. This may have caused them to stop investing, or even pull their money out, causing them to miss out on the growth that came shortly after. By automating your investments with DCA, you can commit to following a long-term plan and not focus as much on the short-term ups and downs.

Pros and cons of DCA

Consider these pros and cons when you’re thinking about whether you should invest using dollar cost averaging. 

Pros

• Builds consistent habits. For new investors, or people who haven’t built an investing habit yet, the automated part of DCA helps you consistently invest every month. Consider it like paying yourself first.

• Reduces the impact of volatility. Investments going up and down can potentially hurt your portfolio and lead to emotional and psychological struggles. By investing every month, you have the opportunity to use those ups and downs to your advantage.

• Keeps you invested. Many people don’t invest because they overthink things, or experience what is known as “paralysis by analysis.” One of the biggest factors of long-term investing success is how long you’re invested, and following a DCA plan helps you stay there. 

Cons

• Potentially lower returns. Investments can move in a variety of ways. If they continue to move upward, then you would be buying shares at increasing prices. If you had just invested all of that money at the beginning, you would’ve been better off. But we just don’t know what the future holds, so this is a risk any investor takes.

• Opportunity cost. If you have cash sitting in your account between DCA contributions, it could have been working for you as the investment potentially grows. Often, though, many investors who use DCA align it with their income, so as soon as paychecks come in, that money is then invested. Opportunity cost would only apply if you have money sitting around that you aren’t doing anything with. 

• Transaction costs. If you use a broker or investing platform that charges transaction fees, it could be more expensive to follow a DCA plan. 

How to start DCA

1. Choose the amount you want to invest

2. Choose how frequently you want to invest (i.e. weekly or monthly)

3. Choose the account you want to invest in (401(k), IRA, child’s education account, etc.)

4. Choose your investments (i.e. index funds, mutual funds, ETFs)

5. Automate your contributions with your broker

6. Stick with your plan. Only change if your goals or situation change. 

Frequently asked questions

Is dollar-cost averaging good for beginners?

Yes, it’s a great way for new investors to get started and build a habit.

Does dollar-cost averaging guarantee returns?

No, investments always carry risk. But DCA can help reduce emotional decisions and the impact of volatility over time.

Can I use DCA for any investment?

DCA is best suited for mutual funds, ETFs, or index funds. It’s less practical for large one-time purchases like real estate.

How often should I invest?

Choose what fits your budget and stick with it. Many investors choose to align DCA with their paycheck. For some, this means once a month. For others, this could be weekly.

A powerful tool for building wealth

Dollar-cost averaging can be a powerful yet simple tool for building long-term wealth—without needing to time the market. By staying consistent and committed, even busy families can make investing a regular part of their financial lives.

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*© 2025 Greenlight Investment Advisors, LLC, an SEC Registered Investment Advisor provides investment advisory services to its clients. Investing involves risk and may include the loss of principal. Investments are not FDIC-insured, are not a deposit, and may lose value.