Dollar Cost Averaging refers to the practice of buying an asset at regular intervals to lower the average cost of acquisition while benefiting from long-term appreciation. The method is an age-old investment concept and has been used in the traditional markets for over half a century.
Working with Example
Dollar Cost Averaging helps you buy assets at frequent intervals. You buy more assets during bear markets when the prices are low, and you buy fewer assets during bull markets when the prices are high. Overall, it leads to a lower cost of acquisition in the long run.
Let’s understand this with an example.
Suppose you buy $1000 worth of XYZ every month for 1 year. From months 1 to 4, the prices remain at $1000. For months 5 to 8, the prices remain at $900, and for months 9 to 12, the prices remain at $1100. Now, for each month, the asset size and the average cost of buying are as follows:
- Month 1
- Net Assets at $1000, for 1 unit of XYZ
- Average Cost is $1000
- Month 2
- Net Assets at $2000, for 2 units of XYZ
- Average Cost is $1000
- Month 3
- Net Assets at $3000, for 3 units of XYZ
- Average Cost is $1000
- Month 4
- Net Assets at $4000, for 4 units of XYZ
- Average Cost is $1000
- Month 5
- Net Assets at $4900, for 5 units of XYZ
- Average Cost is $980
- Month 6
- Net Assets at $5800, for 6 units of XYZ
- Average Cost is $966.6
- Month 7
- Net Assets at $6700, for 7 units of XYZ
- Average Cost is $957
- Month 8
- Net Assets at 7600, for 8 units of XYZ
- Average Cost is $950
- Month 9
- Net Assets at $8900, for 9 units of XYZ
- Average Cost is $980
- Month 10
- Net Assets at $10,000, for 10 units of XYZ
- Average Cost is $1000
- Month 11
- Net Assets at $11,100, for 11 units of XYZ
- Average Cost is $1010
- Month 12
- Net Assets at $12,200, for 12 units of XYZ
- Average Cost is $1016
From this example, we see that despite price volatility, the average cost per unit remains close to the initial price.
Advantages and Disadvantages
DCA has a lot of advantages like:
- It helps you buy more assets during bear markets and fewer during bull runs, bringing your average cost down.
- It can be used as a no-genius investment principle that is easy to understand.
- There is no minimum capital required for DCA.
However, there are a few disadvantages too:
- DCA ignores the risk assets that are in a long-term downtrend.
Top Assets to DCA in 2025
Gold
Gold had one of the best bull runs in the last few years, rising from $1700 per ounce in 2020 to over $4200 per ounce in 2025. Although prices are at an all-time high, they are expected to rise further in the coming few years as Central Banks continue their Gold purchases to diversify foreign exchange reserves.
Bitcoin
Bitcoin is one of the best assets for DCA since its creation. Rising from a fraction of a dollar in 2009 to over $126,000 in 2025, it represents one of the most profitable assets ever. Strategy: a Bitcoin Treasury has been buying BTC since 2022, and to date, its average cost is $75,000, well below the 2025 correction lows.
