How to Calculate Dollar Cost Averaging
What is Dollar Cost Averaging?
Dollar-cost averaging invests a fixed amount regularly, reducing the impact of market volatility. By buying more shares when prices are low and fewer when high, it lowers the average cost per share.
Formula
Average cost per share = Total invested / Total shares acquired
Step-by-Step Guide
- 1Enter investment amount, time period, and price history
- 2Calculate shares purchased each period at current price
- 3Sum total spent and shares to find average cost
Worked Examples
Input
Monthly: $500, Prices: $50, $40, $60
Result
Avg cost ≈ $49.17/share
vs simple average of $50
Common Mistakes to Avoid
- ✕Confusing with buying a lump sum at average price
- ✕Ignoring fees and slippage
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