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Dollarcost averaging works from "summary" of A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Twelfth Edition) by Burton G. Malkiel
"Dollar-cost averaging" is a strategy that involves investing a fixed dollar amount in a particular investment at regular intervals, regardless of what the price of the investment is at that time. The idea behind dollar-cost averaging is simple: by investing a fixed amount consistently over time, you end up buying more shares when prices are low and fewer shares when prices are high. This strategy helps to smooth out the effects of market volatility and can reduce the overall cost of investing in the long run. Dollar-cost averaging works because it takes advantage of the natural fluctuations in the market. When prices are low, your fixed investment buys more shares, allowing you to benefit from future price increases. Conversely, when prices are high, your fixed investment buys fewer shares, protecting you from overpaying for the investment. One of the key benefits of dollar-cost averaging is that it removes the need to try to time the market. Market timing is notoriously difficult, if not impossible, even for professional investors. By investing a fixed amount at regular intervals, you avoid the temptation to try to predict when prices will be at their lowest or highest. Instead, you stay disciplined and stick to your investment plan. Another advantage of dollar-cost averaging is that it helps to reduce the emotional aspects of investing. Market fluctuations can trigger fear and greed, causing investors to make irrational decisions. By investing a fixed amount at regular intervals, you remove the emotional component from the investment process and focus on the long-term goal of building wealth.- Dollar-cost averaging is a simple yet effective investment strategy that can help investors build wealth over time. By investing a fixed amount at regular intervals, regardless of market conditions, investors can take advantage of market fluctuations and reduce the emotional aspects of investing. This strategy is based on the idea that over the long run, the market tends to go up, and by consistently investing over time, investors can benefit from this upward trend.
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