Dollar Cost Averaging

Dollar Cost Averaging (DCA) is an investment strategy where an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals; in effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices.

The main benefit of DCA is that it allows an investor to avoid making a large investment in an asset at a potentially inopportune time. Instead, by spreading out purchases, the investor can achieve an average cost per share (or coin, in the case of cryptocurrencies). This can potentially lower the total cost of acquisition, especially in volatile markets.

While DCA can help mitigate risks associated with price volatility, it's not always the most profitable strategy. If the price of an asset consistently rises over time, a lump-sum investment could potentially yield higher returns. However, predicting market trends with certainty is challenging, and DCA provides a more disciplined and less risky approach.

DCA is a popular strategy among long-term investors, especially for retirement accounts and 401(k) contributions. It's also commonly used in the cryptocurrency market, where price volatility is high.