Definition

Dollar Cost Averaging (DCA) is when you invest the same amount of money regularly, no matter the market price. This way, you buy more when prices are low and less when prices are high, helping you build wealth steadily over time.

Analogy

Imagine a kid who loves collecting Pokémon cards. Every month, they save up $20 to buy a few packs, whether the store has a sale or prices are higher. Some months they get a ton of cards because the packs are cheap; other months, they get fewer cards because prices are high. Over time, they build an awesome collection without worrying too much about prices on any single day.

Investing works similarly with DCA—you consistently buy more shares when prices are low and fewer when prices are high, helping you build your "financial collection" over time.

Real-World Example

Let's break down a practical scenario:

• Month 1: Invest $100 when the stock price is $20 (You buy 5 shares)

• Month 2: Invest $100 when the stock price is $10 (You buy 10 shares)

• Month 3: Invest $100 when the stock price is $25 (You buy 4 shares)

Total invested: $300 Total shares: 19 shares Average price per share: $15.79

Little-Known Fact

Benjamin Graham, known as Warren Buffett's mentor, was one of the earliest proponents of DCA. In his influential book "The Intelligent Investor," he recommended it as a strategy to reduce the risk of investing at the wrong time.

Action Steps:

1. Choose Your Investment Amount: Pick an amount you can consistently invest (e.g., $200 per month).

2. Select an Investment Vehicle: Look into Stocks, ETFs, or Mutual Funds.

3. Automate Your Investments: Set up recurring contributions through your brokerage platform.

4. Stay Consistent: Avoid altering your plan based on market changes.

5. Review Periodically: Check in on your investments every 6-12 months.