Dollar Cost Averaging Calculator
Dollar cost averaging means investing a fixed amount on a fixed schedule regardless of price. It is what almost everyone already does through payroll deduction, and its real benefit is frequently misstated.
It Buys More Shares When Prices Are Low
Investing $500 monthly into a volatile fund:
| Month | Price | Shares bought |
|---|---|---|
| 1 | $50 | 10.0 |
| 2 | $40 | 12.5 |
| 3 | $25 | 20.0 |
| 4 | $40 | 12.5 |
| 5 | $50 | 10.0 |
| Total | 65.0 shares for $2,500 |
The Honest Comparison
Against investing a lump sum you already hold, DCA loses about two-thirds of the time, because markets rise more often than they fall and cash waiting on the sidelines earns nothing.
Against not investing, which is the actual alternative for most people, DCA wins overwhelmingly. Monthly investing from income is not a market-timing decision at all — the money did not exist to invest earlier.
Its Genuine Advantages
- It removes the decision. No judgement call about whether now is a good entry point,
- It matches how income arrives. You are paid monthly; you invest monthly.
- It survives drawdowns. An automatic contribution during a crash buys the cheap months
- It is automatable, and automation is what makes a plan survive a busy decade.
Where It Fails
DCA into a single stock, or a fund in structural decline, averages down into a loss. The mechanism assumes the asset recovers; it has no opinion on whether it will. Diversification is what makes the assumption reasonable.
Increase the Amount With Income
A contribution fixed in 2016 dollars is a shrinking contribution. Raising it with each pay rise — before the money reaches your current account — is the single change that most improves a long-run projection.
The Projection Behind This Page
Starting from $10,000, adding $200 a month at 7%:
| Year | Deposited | Balance | Growth | Growth on deposits |
|---|---|---|---|---|
| 1 | $12,400 | $13,201 | $801 | 6% |
| 5 | $22,000 | $28,495 | $6,495 | 30% |
| 10 | $34,000 | $54,714 | $20,714 | 61% |
| 20 | $58,000 | $144,573 | $86,573 | 149% |
The Formula
``
A = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) − 1) ÷ (r/n)]
└── initial principal ──┘ └────── regular contributions ──────┘
``
The second term usually dominates. On these numbers the $200 monthly contribution accounts for the larger share of the final balance, which is the practical lesson: how much you add matters more than the rate, right up until the balance gets large.