Dollar-cost averaging
Investing a fixed amount at regular intervals, so you buy more units when prices are low.
Rather than investing a lump sum at one price, dollar-cost averaging spreads purchases across time. A fixed dollar amount automatically buys more units when prices fall and fewer when they rise.
The main benefit is behavioural. It removes the paralysis of trying to time an entry and makes investing a routine rather than a decision, which is what most people struggle with.
Mathematically, investing a lump sum immediately produces better expected returns more often than not, simply because markets rise more often than they fall. Averaging trades some expected return for reduced regret.
Automation is what makes it work. Setting up an automatic transfer and purchase removes the monthly decision entirely, and the investors who accumulate most reliably are usually those who stopped deciding and started scheduling.
How averaging plays out
Investing $500 monthly, you buy fewer units at $50 and more at $40. Your average cost per unit ends up below the average price over the period.
The bit people get wrong
Averaging reduces the risk of investing everything at a peak, but it also guarantees you miss the best entry if markets rise steadily. It manages regret rather than maximising returns.
Common questions
Is it better than investing a lump sum?
Historically lump sum wins more often because markets trend upward. Averaging is preferable when the alternative is not investing at all due to nerves.
How often should I invest?
Monthly aligns with most pay cycles and keeps brokerage proportionate. More frequent investing adds cost without meaningful benefit.
Does my super do this already?
Yes. Employer contributions arriving each pay cycle are automatically dollar-cost averaged into your chosen investment option.