Most people wait. They wait for the "right time" to invest — when markets look calmer, when they have more money saved, when they feel more confident. The irony is that waiting is usually the worst strategy. Dollar-cost averaging is the antidote: invest a fixed amount at regular intervals, regardless of what the market is doing.
Instead of investing a lump sum all at once, you split it into regular instalments — £200 every month, £50 every week, whatever suits your cash flow. The key: you invest the same pound amount each time, not the same number of shares. This means you automatically buy more shares when prices are low and fewer when prices are high.
When the price dropped to £6 in March, your £200 bought 33 shares — more than any other month. When prices recovered to £14 by June, those 33 cheap shares were worth £462. You automatically bought more at the bottom without even trying.
Over the six months above: 131 shares bought for £1,200 total. Average cost per share = £1,200 ÷ 131 = £9.16. The simple average of the six prices (£10+£8+£6+£9+£12+£14 ÷ 6) = £9.83. Your average cost is lower than the average price. This is the mathematical edge of DCA — it's not magic, it's arithmetic.
Studies consistently show that lump sum investing outperforms DCA roughly two-thirds of the time in rising markets — if you have money available now, investing it all immediately captures more upside than drip-feeding it in. But most people don't have a lump sum — they have monthly income. For regular savers, DCA isn't a compromise, it's the natural strategy. And it removes the psychological burden of trying to pick the perfect entry point, which most investors get wrong anyway.
The most powerful version of DCA: automate it. Set up a monthly direct debit into your Stocks & Shares ISA on payday. You never see the money, so you never talk yourself out of investing it. The investors who build real wealth aren't the ones who time the market — they're the ones who stay in the market consistently, through every crash and every boring flat period.
Dollar-cost averaging (DCA) means investing a fixed amount on a regular schedule — say £50 every month — regardless of the price on the day. You automatically buy more units when prices are low and fewer when they're high, which smooths out your average cost over time.
Historically, investing a lump sum straight away has slightly higher average returns, because markets tend to rise over time. But DCA reduces the risk of putting everything in at a bad moment and is far easier to stick to — which is why it's the standard approach for regular monthly investing.
You invest £50 into the same fund on the same day each month and leave it alone. Over years, that steady habit builds a meaningful position without you ever needing to time the market.
New to investing? See the full guide on how to invest as a teenager in the UK.
Answer questions on dollar-cost averaging, earn XP, and challenge your mates to a stock duel.
Download free on iOS →