In investing, what does the term dollar-cost averaging describe?

In investing, dollar-cost averaging describes regular fixed-amount investing.

Under a dollar-cost averaging plan, an investor puts the same amount of money into an asset at regular intervals, regardless of its current price. When prices are lower, the fixed contribution buys more units; when prices are higher, it buys fewer units. The approach can reduce the risk of committing all available money immediately at one price.

The method is often used in workplace retirement plans, where contributions are made from each paycheck. It can also impose a disciplined schedule and reduce the temptation to make emotional decisions based on short-term market movements.

Dollar-cost averaging does not guarantee a profit and cannot prevent losses in a falling market. If a large sum is already available, investing it gradually may produce lower returns than investing it immediately when markets rise, because some money remains uninvested. The strategy is therefore a contribution and timing method, not a guarantee of superior performance.