Dollar-Cost Averaging
Definition
Investing the same amount of money at regular intervals (weekly, monthly, etc.) regardless of the price. When the market is high, you buy fewer shares. When it's low, you buy more. Over time, this smooths out price volatility and removes the stress of timing the market.
Why It Matters
Nobody can consistently predict market tops and bottoms. Dollar-cost averaging automates investing so you don't have to worry. It's especially powerful in retirement accounts like 401(k)s, which take fixed amounts from each paycheck.
Example
Invest $1,000 monthly in an index fund. Month 1: price is $100, you buy 10 shares. Month 2: price is $90, you buy 11.11 shares. Month 3: price is $110, you buy 9.09 shares. You've reduced the impact of price swings.