Dollar-cost-averaging (DCA) is a systematic program of investing equal sums of money at regular intervals regardless of the investment’s price. It’s a simple approach requiring you to determine two parameters: the fixed amount for each period and how often.
The DCA approach minimizes risk and is desirable for investors with low-risk tolerance. It automatically buys more shares through downturns and lower prices, decreasing the average share price.
Buffett advises investors to use a low-cost-average approach and not make all their purchases at once, whether buying shares or index funds.
Dollar-cost averaging buys more shares at lower prices over time, reducing the average cost. Though losses can't be eliminated, this strategy limits them during market downturns.
Dollar-Cost-Averages provide a mechanism that eliminates emotional biases that may undermine our portfolio strategy.
Market volatility can be stressful. DCA smooths out the volatility by regularly making lower-priced share purchases. Investors can better ignore the daily noise affecting the market.