Dollar-Cost Averaging Calculator

Compare the benefits of regular investing versus lump-sum investing over time

Input Parameters
£
Period over which to spread DCA investments
£
Calculated automatically from total amount and period
%
%
Higher volatility can increase DCA benefits
More runs = more accurate results but slower calculation
Investment Comparison

Comparison Results

Enter your investment details and click "Calculate" to see the comparison.

Detailed Results
Metric Lump Sum Dollar-Cost Averaging Difference
Understanding Dollar-Cost Averaging
What is Dollar-Cost Averaging?

Dollar-Cost Averaging (DCA) is an investment strategy where you invest a fixed amount of money at regular intervals, regardless of the asset's price. This approach can reduce the impact of volatility on your overall purchase and potentially lower the average cost per share over time.

How It Works

When you invest regularly:

  • You buy more shares when prices are low
  • You buy fewer shares when prices are high
  • This can result in a lower average cost per share over time
  • It removes the emotional aspect of trying to "time the market"
Lump Sum vs. Dollar-Cost Averaging

The alternative to DCA is investing all your money at once (lump sum investing). Each approach has its advantages:

Lump Sum Advantages
  • More time in the market
  • Often performs better in rising markets
  • Lower transaction costs
  • Simpler to manage
DCA Advantages
  • Reduces timing risk
  • Can perform better in volatile or declining markets
  • Psychologically easier
  • Creates a disciplined investing habit
When to Consider Dollar-Cost Averaging

DCA might be particularly beneficial when:

  • You're concerned about market volatility or potential downturns
  • You have a lump sum but feel uncomfortable investing it all at once
  • You want to establish a regular investing habit
  • You receive income periodically (e.g., monthly salary) and want to invest consistently
The Mathematics Behind DCA

Dollar-cost averaging works because of a mathematical principle called "harmonic mean." When you invest the same amount regularly, you're buying more shares when prices are low and fewer when prices are high.

For example, if you invest £100 monthly:

  • Month 1: Share price £10 → You buy 10 shares
  • Month 2: Share price £5 → You buy 20 shares
  • Month 3: Share price £20 → You buy 5 shares

Total investment: £300 for 35 shares

Average cost per share: £8.57 (£300 ÷ 35)

This is lower than the average market price of £11.67 (£10 + £5 + £20 ÷ 3)

Tips for Effective Dollar-Cost Averaging
  1. Be consistent: Stick to your schedule regardless of market conditions
  2. Automate investments: Set up automatic transfers to remove emotion from the process
  3. Choose appropriate intervals: Monthly or quarterly investments work well for most people
  4. Consider transaction costs: Ensure fees don't eat into your returns
  5. Be patient: DCA is a long-term strategy that works best over extended periods
  6. Diversify: Apply DCA across different asset classes for better risk management