Dollar-cost averaging
Dollar-cost averaging is investing a fixed amount at fixed intervals regardless of price, which buys more units when prices are lower and fewer when they are higher. Its main effect is behavioural — it removes the timing decision — rather than mathematical.
Invest £500 monthly and you buy more shares in the cheap months than in the expensive ones automatically. No forecast is required, and no decision has to be made in the moment.
The honest version of the evidence
Compared with investing the same total as a single lump sum, dollar-cost averaging has historically produced lower average outcomes across most long rising periods, simply because money invested earlier is exposed for longer. What it reliably reduces is the range of outcomes, and the chance of committing everything immediately before a large decline.
So the accurate claim is not that it produces better returns. It is that it produces a decision you are more likely to keep making, which for most people is worth more than the theoretical difference.
Where it goes wrong
The strategy stops being dollar-cost averaging the moment the contribution is paused because conditions look bad. Pausing is a timing decision, and it is the one the approach exists to eliminate. An investor who stops contributing during declines has kept the label and discarded the mechanism.
Related terms
Maintained by Jared Sinclair, Founder · Syrax Global FZCO · Definitions are educational, not financial advice.
Knowing the vocabulary is the easy part.
Every term here can be learned in an afternoon. Applying them consistently under pressure is the part that decides outcomes — and the part almost nobody measures. That is what the series is about.