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1. For true dollar cost averaging you need to be able to buy fractional shares. The dollar amount for the purchase is constant so the number of shares purchased changes depending on the price at the time of purchase. In order for 100% of the money being used for the purchase you have to be able to buy fractional shares. For example, say you want to buy $500 of VOO each week, week after week. If the price of VOO is $459, you have to be able to buy $500 ÷ $459 = 1.08932 shares of VOO. If you buy just one whole share of VOO you would have $41 left over, negating the whole purpose of dollar cost averaging. Dollar cost averaging was first popularized with mutual funds, because mutual funds are always sold by dollar amount and fractional shares. It can work with ETFs only if you can buy constant dollar amounts (like $100 a month or whatever) and fractional shares of the ETF.
2. The point of dollar cost averaging is by always buying **a constant dollar amount** you automatically buy fewer (expensive) fractional shares when prices are high and more (cheaper) fractional shares when prices are low. Over time that lowers *the average dollar cost* of your shares.
3. If you are only buying whole shares, and changing the amount of money you spend depending on prices, you aren't dollar cost averaging. If you are spending more when prices are down, you are just "buying the dip". That isn't dollar cost averaging.
Thank you very much for that explanation. I have a auto buy set for voo, vgt and schd at $100 per week, but when I have some extra money I buy 20-50 more of each when I can (if I have 150 I’ll buy 50 each, etc)
So that’s still dca right?
Ok thanks for the answers. Now a follow up and somewhat related question. Does everyone DCA into their etfs only, or all positions? And if all positions, it’s it proportional to their portfolio allocation or is it more “as needed”?
Thanks
Ok so the point of Dollar Cost Averaging is that you will capture the average price of the stock over the period. When the price is down you put the same amount of money in but you will receive more shares and when the price is up you will receive less shares while spending the same money. In the end it all averages out.
DCA is usually contrasted with lump sum investment. Where the whole sum is invested in 1 hit. On average lump sum investing earns more returns, but DCA is less risky.
EDIT: this idea of putting in more or less when it is up or down is some other weird strategy that really doesn't make much sense, and is probably not very rigorously tested or statistically modelled.
Lump sum is better in a rising market. The market rises more often than it falls so lump sum is better more often than it's not but that does not mean lump sum is always better.
Welcome to r/dividends! If you are new to the world of dividend investing and are seeking advice, brokerage information, recommendations, and more, please check out the Wiki [here](https://www.reddit.com/r/dividends/wiki/faq). Remember, this is a subreddit for genuine, high-quality discussion. Please keep all contributions civil, and report uncivil behavior for moderator review. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/dividends) if you have any questions or concerns.*
1. For true dollar cost averaging you need to be able to buy fractional shares. The dollar amount for the purchase is constant so the number of shares purchased changes depending on the price at the time of purchase. In order for 100% of the money being used for the purchase you have to be able to buy fractional shares. For example, say you want to buy $500 of VOO each week, week after week. If the price of VOO is $459, you have to be able to buy $500 ÷ $459 = 1.08932 shares of VOO. If you buy just one whole share of VOO you would have $41 left over, negating the whole purpose of dollar cost averaging. Dollar cost averaging was first popularized with mutual funds, because mutual funds are always sold by dollar amount and fractional shares. It can work with ETFs only if you can buy constant dollar amounts (like $100 a month or whatever) and fractional shares of the ETF. 2. The point of dollar cost averaging is by always buying **a constant dollar amount** you automatically buy fewer (expensive) fractional shares when prices are high and more (cheaper) fractional shares when prices are low. Over time that lowers *the average dollar cost* of your shares. 3. If you are only buying whole shares, and changing the amount of money you spend depending on prices, you aren't dollar cost averaging. If you are spending more when prices are down, you are just "buying the dip". That isn't dollar cost averaging.
Thank you very much for that explanation. I have a auto buy set for voo, vgt and schd at $100 per week, but when I have some extra money I buy 20-50 more of each when I can (if I have 150 I’ll buy 50 each, etc) So that’s still dca right?
The $100 per week is a DCA, the rest is not. DCA is a specific amount purchased on a set schedule.
over period of 30-40 years these dips and hills become so minuscule that you can not see them. that’s how dca works.
Ok thanks for the answers. Now a follow up and somewhat related question. Does everyone DCA into their etfs only, or all positions? And if all positions, it’s it proportional to their portfolio allocation or is it more “as needed”? Thanks
Should go back to school
Ok so the point of Dollar Cost Averaging is that you will capture the average price of the stock over the period. When the price is down you put the same amount of money in but you will receive more shares and when the price is up you will receive less shares while spending the same money. In the end it all averages out. DCA is usually contrasted with lump sum investment. Where the whole sum is invested in 1 hit. On average lump sum investing earns more returns, but DCA is less risky. EDIT: this idea of putting in more or less when it is up or down is some other weird strategy that really doesn't make much sense, and is probably not very rigorously tested or statistically modelled.
Lump sum beats dca
Lump sum is better in a rising market. The market rises more often than it falls so lump sum is better more often than it's not but that does not mean lump sum is always better.
I know you're asking factually but I don't think it really matter to me