About

Dollar Cost Averaging (DCA) is an investment strategy where an investor divides the total amount to be invested across periodic purchases of a target asset. By doing so, the investor purchases more shares when prices are low and fewer when prices are high, effectively reducing the impact of volatility on the overall purchase. This approach removes the emotional stress of trying to "time the market."

This simulator compares a DCA strategy against a Lump Sum investment. While historical data often favors Lump Sum (due to markets generally rising over time), DCA provides psychological safety and risk mitigation during downturns. The tool uses compound interest logic to project portfolio value over time based on fixed contributions and an estimated annual growth rate.

Formulas

The Future Value (FV) of a DCA series is calculated using the future value of an annuity formula, compounded per period:

FV_dca = P × (1 + r)ⁿ − 1r

Where P is the periodic payment, r is the rate per period, and n is the total number of periods.

For Lump Sum, the standard compound interest formula applies:

FV_lump = Principal × (1 + r_annual)^t

Reference Data

Feature	Lump Sum	Dollar Cost Averaging (DCA)
Capital Required	All upfront	Spread over time
Market Timing	High risk (Bad timing hurts)	Low risk (Smooths out entry)
Psychology	High stress	Set and forget
Bear Markets	Immediate paper loss	Accumulates more units cheap
Bull Markets	Maximizes gains early	Drags performance (Cash drag)
Suitability	Windfalls (Inheritance, Bonus)	Salary income, Monthly savings

Frequently Asked Questions

Statistically, Lump Sum outperforms DCA about 66% of the time because markets tend to rise. However, DCA is superior for minimizing regret and managing cash flow from a regular paycheck.

Historically, the S&P 500 has returned approximately 7-10% annually (adjusted for inflation). For conservative estimates, 6-7% is often used. Crypto or individual stocks may have much higher variance.

This calculator outputs nominal values. To estimate purchasing power (real returns), subtract the inflation rate (e.g., 3%) from your expected Annual Return input (e.g., enter 5% instead of 8%).

Compounding frequency affects the final total slightly. Monthly contributions have more time to compound than annual contributions. This tool assumes contributions are made at the beginning of each period.