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Dollar Cost Averaging Calculator

Compare regular investing vs lump sum

What is Dollar Cost Averaging?

Dollar cost averaging (DCA) is an investment strategy where you invest a fixed amount at regular intervals, regardless of market conditions.

Example: Instead of investing $12,000 all at once, you invest $1,000 per month for 12 months.

Month 1: Stock at $100 Buy 10 shares
Month 2: Stock at $90 Buy 11.1 shares
Month 3: Stock at $110 Buy 9.1 shares

By buying more shares when prices are low and fewer when high, DCA can reduce the impact of volatility.

DCA vs Lump Sum: When to Use Each

✅ Use DCA When:

  • • You receive income regularly (salary)
  • • Markets are at all-time highs
  • • You're nervous about timing
  • • You want to reduce emotional stress
  • • Volatility is high

✅ Use Lump Sum When:

  • • You have cash available now
  • • Markets are trending up
  • • You're comfortable with risk
  • • Time in market matters more
  • • Transaction costs are high

Historical data suggests lump sum investing outperforms DCA about 2/3 of the time in rising markets. However, DCA provides psychological comfort and reduces timing risk.

Real-World Example

Scenario: Two investors have $12,000 to invest in January 2020 (before COVID crash).

Investor A: Lump Sum

Invests $12,000 in January
Experiences -34% crash in March
Holds through recovery
By Dec 2020: $14,400 (+20%)

Investor B: DCA

Invests $1,000/month for 12 months
Buys more shares during crash
Lower average cost per share
By Dec 2020: $13,800 (+15%)

In this case, lump sum won because markets recovered quickly. In prolonged downturns, DCA often performs better. For educational purposes only.

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