Dollar Cost Averaging
How investing a fixed amount at regular intervals smooths out your average purchase price, removes the urge to time the market, and makes investing easy to stick to.
Key idea
Invest the same amount on the same schedule, whatever the price. A fixed sum automatically buys more shares when they're cheap and fewer when they're expensive and it removes the one decision most investors get wrong: when to buy.
What it is
Dollar cost averaging means putting a fixed amount into the same investment at regular intervals, say CHF 300 on the first of every month, no matter what the market is doing. You don't vary the amount, you don't wait for a dip, and you don't skip a month because the news is bad. The schedule makes the decisions for you.
Because the franc amount is fixed, the number of shares it buys changes with the price. Here's CHF 300 a month over four months as the price falls and recovers:
| Month | Price | Invested | Shares Bought |
|---|---|---|---|
| 1 | 100.00 | 300.00 | 3.00 |
| 2 | 80.00 | 300.00 | 3.75 |
| 3 | 60.00 | 300.00 | 5.00 |
| 4 | 100.00 | 300.00 | 3.00 |
| Total | — | 1,200.00 | 14.75 |
You bought the most shares in month 3, when the price was lowest, without deciding to. Your average cost works out to 81.36 per share, below the simple average price of 85, because more of your money went in at the low. The price ended exactly where it started, yet the position is worth 1,475 on 1,200 invested.
Why it works
The benefit is less about the maths and more about behaviour. Three things it does for you:
Removes timing
No guessing whether now is a good moment. The schedule decides, so you never sit in cash waiting.
Buys the dips
A fixed sum automatically picks up more shares when prices fall, the moment most people freeze.
Easy to sustain
A standing order runs itself. The habit survives busy months, market scares and boredom alike.
The honest caveat
If you already have a lump sum sitting in cash, the evidence says investing it all at once usually beats spreading it out, because markets rise more often than they fall, so time in the market tends to win. Dollar cost averaging into an existing pile of cash trades a little expected return for peace of mind.
But that's not the situation most people are in. If you're investing your salary as it arrives, you don't have a lump sum to deploy, you have a stream of income. For that, regular fixed investing isn't a compromise at all. It's simply the natural way to put money to work as you earn it.
Swiss note
Watch the fixed costs. If your broker charges a flat fee per trade, very frequent small buys can eat a real slice of each contribution. Many Swiss investors use a low-cost broker or a fee-free savings plan, or invest monthly rather than weekly, to keep the drag down.
Key takeaways
- —A fixed amount buys more shares when prices are low and fewer when they're high, automatically.
- —Its real value is behavioural: it removes market timing and is easy to keep up for years.
- —For a lump sum already in cash, investing all at once usually wins on expected return.
- —For investing a salary as it arrives, regular fixed investing is simply the natural approach.