DCA is popular technique that crops up all the time in personal finance books—David Chilton’s The Wealthy Barber was one of the first to popularize it back in the late 1980s. If you need a refresher, DCA is a strategy for investing a large sum gradually. For example, if you have $100,000 you might invest $25,000 today and the same amount in each of the next three quarters, or perhaps $5,000 at a time over 20 months.
The idea sounds appealing: if the markets plummet after you invest a lump sum, you’ll suffer a major loss and be filled with regret. However, by investing a little at a time you avoid putting all your money at risk immediately, and if markets decline you’ll benefit by making some of your purchases when prices are low.
Roy, the eponymous hero of The Wealthy Barber, made DCA seem like magic: “Dollar cost averaging is as close to infallible investing as you can get.