BEGINNER CONCEPTS
DCA explained with a three-purchase example
See how equal contributions buy different quantities, and why averaging purchases does not guarantee profit.
Open the related tool →Equal contributions do not buy equal quantities
Dollar-cost averaging means making equal-sized investments at regular intervals. When the unit price is lower, the same contribution buys more units; when it is higher, it buys fewer. Investor.gov describes this regular-contribution approach. It is a way to structure purchases, not a promise that the chosen asset will recover or produce a positive return.
Three fictional purchases, no fees
Suppose you contribute $100 on each of three dates. The prices are $100, $50 and $100 per unit.
| Purchase | Contribution | Unit price | Units bought |
|---|---|---|---|
| First | $100 | $100 | 1 |
| Second | $100 | $50 | 2 |
| Third | $100 | $100 | 1 |
| Total | $300 | — | 4 |
Total acquisition cost is $300 and total quantity is four units, giving an average cost of $75 per unit. At a final price of $100, value is $400 and profit is $100 before costs. At a final price of $40, the same four units are worth $160 and the loss is $140. Regular buying does not remove downside risk.
Do not average the three prices directly
The arithmetic mean of $100, $50 and $100 is about $83.33. That is not the average acquisition cost in this example because different quantities were bought at each price. Divide the total acquisition amount by the total units instead. Fees can change the quantity received, the cash outlay or both; check which convention your calculation uses.
Projection versus historical data
The Simple DCA Projection tool uses a hypothetical price path. The Historical DCA Backtester uses dated price observations you supply or an available enabled source. A backtest depends on those observations, the purchase schedule, missing-date handling and the chosen final date. It cannot establish what future prices will be.
- Try the downloadable fictional price CSV to learn the historical workflow.
- Select dates that fall inside its supported price range.
- Review every scheduled and executed purchase date.
- Check total contributions, fees, quantity and final valuation.
Compare like with like
A lump-sum comparison assumes that the capital was available at the start. If money only became available gradually, that comparison describes a different funding situation. Likewise, changing the end date can change the outcome substantially. Keep the dates and assumptions with your exported report so a later reader can understand what was actually compared.
Frequently asked questions
Does DCA guarantee a lower average cost?
No. The result depends on the price path, contribution dates and fees.
Are the downloadable example prices real history?
No. They are clearly labelled fictional data for learning the workflow.
Sources and further reading
Sources checked 7 October 2026. Worked examples are independently calculated illustrations.
Educational examples only. No trades are executed. Check source data and assumptions before relying on a result.
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