Dollar Cost Averaging (DCA)

Dollar Cost Averaging (abbreviated DCA) is an investment approach where an investor buys a fixed dollar amount of an investment at regularly scheduled intervals.

For example, using a Dollar Cost Averaging approach an investor might purchase $100 of a stock each month.  Fluctuations in the price of the stock over time will change the amount of shares the investor purchases each month. But each month the investor will continue to purchase as many shares as $100 will buy.  In months where the stock price increases, he/she will purchase fewer shares but in months where the price declines he/she will purchase more shares.