I was first introduced to the concept of Dollar Cost Averaging (DCA) when I was new to investing. At that time, I thought DCA sounded logical for it denotes the idea where investing should be viewed as a long-term activity to increase one’s wealth and not as a speculative activity to make a quick buck.
Before I move on, let me briefly explain the key concepts of Dollar Cost Averaging:
What is DCA and How it Works?
Dollar Cost Averaging is an investment method which involves the following:
You pick an investment, be it a stock, a mutual fund, an ETF … etc. Let’s use a stock known as A Ltd as an example. Let’s assume that you are able to save $1,000 a month to buy shares of A Ltd. In Month 1, A Ltd was trading at $ 1 a share. Thus, you purchased 1,000 shares of A...