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What is Dollar Cost Averaging?

Dollar cost averaging is a way to save money for the future. Imagine you have a little piggy bank and you want to save up for a new toy. Every week, you put some of your allowance into the piggy bank. Sometimes you can only put in a little bit, and other times you can put in a lot.

If the toy costs $20 and you put in $1 every week, it might take you a while to save up enough money. But if you keep putting in money every week, eventually you will have enough to buy the toy.

Dollar cost averaging is like saving up for a toy in your piggy bank, except instead of saving up money, you are saving up shares of a stock. You might not be able to afford to buy all the shares you want at once, so you buy a little bit every month or every week. That way, you can still own the stock even if you don’t have enough money to buy it all at once.

This page was last updated on January 3, 2023.