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An investment strategy of regularly investing a fixed dollar amount regardless of the asset's price, reducing the impact of volatility over time.
When you invest $500 every month into an index fund, you buy more shares when prices are low and fewer shares when prices are high. Over time, this typically results in a lower average cost per share than making a single lump-sum purchase at the wrong time. A 401(k) contribution is a classic form of dollar-cost averaging. While lump-sum investing has historically outperformed DCA about two-thirds of the time (because markets tend to go up), DCA provides psychological comfort and helps avoid the risk of investing everything at a market peak.