What Is Dollar-Cost Averaging And 4 Reasons Not To Use It


Investing may be an excellent method to safeguard your financial future, but knowing where to start and how much money to put in is hard. Many people are hesitant to invest because they don’t want to lose money.

Dollar-cost averaging is an intelligent way to invest no matter how much money you have. Let us explore the dollar-cost averaging approach, its advantages and disadvantages, and when you should avoid it.

What Are the Disadvantages of Dollar-Cost Averaging?


Dollar-cost averaging is only beneficial if the asset’s value rises over time. The technique can not protect investors from the prospect of falling market prices.

No Downside Protection

Another disadvantage is that the dollar-cost averaging strategy also requires a long-term outlook on your investments. So if you need the funds for short-term expenses, it is better to use I-Bonds.

Need Long Term

Dollar-cost averaging is a valuable tool for lowering risk—however, those who use this technique risk missing out on significantly higher earnings. If the market rises while you are dollar-cost averaging, you may miss out on potential gains if you invest immediately with lumpsum investing.

Possibly Missing Gains

If you are with a brokerage that charges fees for every trade, buying more frequently raises transaction costs. However, with several brokerages offering free trades for investing in stocks, you should open an account with no-fee investment firms. There is no need to pay more brokerage fees.

Higher Trading Costs

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