Dollar-Cost Averaging Calculator
Simulate investing a fixed amount periodically and compare against lump sum across different market scenarios.
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Dollar-cost averaging (DCA) means investing a fixed dollar amount at regular intervals regardless of price. Instead of trying to time the market with a single large investment, you automatically buy more units when prices are low and fewer when prices are high — potentially lowering your average cost per unit over time.
Example
$500/month for 5 years starting at $100/unit in a rising market: DCA: $30,000 invested, avg cost ~$133/unit, final value ~$45,000 (+50%) Lump sum: $30,000 at $100/unit = 300 units × final price ~$160 = ~$48,000 (+60%) In a falling market, DCA often wins: lower average cost basis vs. buying all units at the high initial price.
How DCA Works
Each period: Units purchased = Investment amount ÷ Price Total units = sum of all purchased units Average cost basis = Total invested ÷ Total units Final portfolio = Total units × Current price Return = (Final portfolio − Total invested) ÷ Total invested × 100%
When DCA Beats Lump Sum
Research shows lump sum investing outperforms DCA in bull markets ~67% of the time — because time in market beats timing. But DCA: • Reduces sequence-of-returns risk (buying before a crash hurts less) • Is practically easier — most people invest from monthly income • Is psychologically easier — no fear of a single bad entry point • Tends to outperform when markets trend sideways or downward
Frequently Asked Questions
Does DCA actually reduce risk?
It reduces timing risk — the risk of investing everything at a market peak. But it doesn't protect against a sustained downtrend. If prices keep falling indefinitely, both DCA and lump sum lose money.
What's the best frequency — weekly, monthly, quarterly?
More frequent investing averages costs more precisely, but the benefit diminishes quickly. Monthly is the practical sweet spot for most investors, aligning with pay cycles. Weekly adds complexity without meaningful benefit.
Should I use DCA for stocks, crypto, or ETFs?
DCA works for any asset with fluctuating prices. It's especially popular for index ETFs (S&P 500) and crypto (Bitcoin). For bonds or stable-value assets, the averaging benefit is minimal.
How is average cost basis used in taxes?
Average cost basis is used to calculate capital gains: Sale price minus average cost basis = taxable gain. Many brokers calculate this automatically. In the US, short-term (< 1 year) gains are taxed as ordinary income; long-term at lower rates.