What is Dollar Cost Averaging or Constant Dollar Plan?

Dollar Cost Averaging (DCA) also known as Constant Dollar Plan or Pound Cost Averaging is a method of profiting from stock or any other similar market for a long-term. In DCA, the investor constantly buys the stock/unit for a fixed amount per month, increasing his/her trading asset.

Dollar cost averaging is considered as a method to overcome market downfalls as it let the investor to buy more number of stocks when the market is falling and buy lesser number of stocks when market is on high. The profit really comes from the long-term performance of stocks, which is nearly 11% per year for US stock markets irrespective of economic ups and downs.

The greatest advantage of dollar cost averaging is it is independent of market timing. One can buy stocks irrespective of market condition. This type of stock investing is also helpful eliminating the risk of investing large amounts at a wrong time. DCA investing strategy is best suited for investors who can spend a part of their monthly earning to set-up a trading portfolio step by step. The success level is determined by the price of equity at the time of selling.

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