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Dollar-cost averaging (DCA) — how it works and why people use it. DCA is investing a fixed dollar amount at regular intervals regardless of price. That causes you to buy more shares when prices are lower and fewer when prices are higher, reducing the average per-share cost in volatile markets. For many beginners, DCA helps manage behavioral risk: it reduces regret tied to bad timing and encourages disciplined, ongoing saving. It is most valuable when the investor fears short-term volatility or when large lump-sum investments would cause stress.

Quantitative and behavioral trade-offs. Empirically, lump-sum investing historically outperformed DCA more often because markets have trended upward, so investing sooner generally gives more time for compounding. But DCA’s power is psychological: it reduces the chance you delay investing due to fear. Use DCA for new savers and when deploying irregular windfalls gradually; for large pools of cash, weigh the historically higher expected return from lump-sum investing against your personal comfort and likelihood of staying invested.

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By Quiz Coins

Wells Fargo was founded in 1852 and used stagecoaches to carry gold, mail, and cash across the American West.

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