All About 401(k) Plans

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4. Dollar cost averaging

Dollar cost averaging (DCA) is an investment strategy that may be used with any currency. It takes the form of investing equal monetary amounts regularly and periodically over specific time periods (such as $100 monthly for 10 months) in a particular investment or portfolio. By doing so, more shares are purchased when prices are low and fewer shares are purchased when prices are high. The point of this is to lower the total average cost per share of the investment, giving the investor a lower overall cost for the shares purchased over time.[1]
Dollar cost averaging is also called the constant dollar plan (in the US), pound-cost averaging (in the UK), and, irrespective of currency, as unit cost averaging or the cost average effect.[2]