How to DCA
Simple Steps
- Pick a schedule (weekly/bi-weekly/monthly)
- Set automatic transfers + buys
- Use the same ETF(s) each time
- Stick to the plan regardless of market conditions
Example DCA Setup
Amount: $500/month
Schedule: 1st of every month
Investment: VTI (Total Stock Market)
Result: Buy more shares when prices are low, fewer when high
How DCA works
| Month | Investment | Share Price | Shares Bought |
|---|---|---|---|
| Jan | $500 | $100 | 5.00 |
| Feb | $500 | $80 | 6.25 |
| Mar | $500 | $120 | 4.17 |
| Total | $1,500 | Avg: $97.56 | 15.42 |
Average cost per share: $97.56 vs. simple average price of $100
Benefits of DCA
Reduces timing risk
You don't need to guess the best time to invest. Market timing is extremely difficult even for professionals.
Eliminates decision fatigue
Set it and forget it. No need to constantly decide when and how much to invest.
Builds discipline
Forces regular investing habit. Helps you invest during scary market periods.
Smooths volatility
Reduces impact of short-term market swings on your average purchase price.
When NOT to DCA
Lump Sum May Be Better When:
- You already have a large lump sumIf you have $50k sitting in cash and a long timeline, historical data shows lump sum investing often outperforms DCA (~65% of the time)
- High trading fees$5-10 commission per trade makes frequent small purchases expensive
- Account minimumsSome funds require $1,000+ minimums that prevent small regular purchases
- Tax considerationsIn taxable accounts, spreading purchases may create more tax complexity
DCA vs Lump Sum: The Evidence
Research Findings
Vanguard Study Results:
- • Lump sum beat DCA ~67% of the time over 10+ year periods
- • Average outperformance: 1-3% annually
- • Reason: Markets trend upward over time
But DCA still makes sense for:
- • Regular income investors (most people)
- • Risk-averse investors who sleep better
- • Behavioral benefits of automation
Best practices for DCA
Choose your frequency
- • Weekly: Maximum volatility smoothing, more transactions
- • Bi-weekly: Aligns with paychecks, good balance
- • Monthly: Most common, easier to track
Align with your cash flow
Best schedule matches when you get paid:
- • Get paid monthly? Invest monthly
- • Get paid bi-weekly? Consider bi-weekly investing
- • Irregular income? Set aside money and DCA from savings
Setting up automated DCA
Step-by-Step Setup
- 1. Set up automatic bank transfer to brokerage
- 2. Enable automatic investing in your chosen ETF(s)
- 3. Choose dollar amount and frequency
- 4. Enable dividend reinvestment (DRIP)
- 5. Set calendar reminder to review annually
Frequently Asked Questions
Will DCA guarantee profits?
No—just smooths entry points. If markets decline over your entire investing period, DCA won't save you from losses.
What's the best schedule?
Align with your pay cycle for consistency. Monthly is most popular and practical for most investors.
Should I pause DCA during market crashes?
No! That defeats the purpose. Crashes are when DCA works best—you're buying more shares at lower prices.
Can I DCA and lump sum invest?
Yes! DCA your regular income and lump sum invest windfalls (bonuses, tax refunds, inheritance).