Dollar-Cost Averaging

There have been studies in academic literature on the subject of dollar-cost averaging for buying securities.

There is some evidence against the use of that strategy. Still, dollar-cost averaging continues to be used by investors and is recommended by most financial advisers.

There is psychological appeal when an investor has to commit to a large purchase and prices are erratic from day to day.

Also, the popularity of dollar-cost averaging comes from examples that show its use results in greater stock holdings across the stock market cycle, compared to a one-time, lump-sum investment.

Whether it ought to be employed usually depends on the volatility of the markets. If the market for a security is trending up, dollar-cost averaging can prove more costly. If the market tends to be volatile, or erratic, dollar-cost averaging procedure will result in lower-cost.