Glossary
Dollar-cost averaging
Investing a fixed amount at fixed intervals regardless of price.
Dollar-cost averaging: what it means in practice
Put in $500 on the first of every month and you buy more shares when prices are low and fewer when they are high, without needing to predict anything.
It usually underperforms investing a lump sum immediately, because markets rise more often than they fall. Its real value is behavioural: it removes the decision, and the decision is where most people destroy their returns.
Be honest about which problem it solves. Because markets rise in most twelve-month periods, putting a lump sum in immediately beats spreading it out more often than not. Averaging in is insurance against regret, bought at a small expected cost - a reasonable trade for someone who would otherwise panic, and a poor one for someone who would not.
When the money arrives monthly, though, the debate disappears: a salary has no lump sum to invest, and paying in every month is simply what investing looks like. The real mistake is deliberately holding cash in order to average in later. That is market timing under a friendlier name, and it costs whatever the market does while the money waits.