Dollar-Cost Averaging
Achats périodiques par sommes fixes in French
Quick definition
Dollar-cost averaging means investing a fixed amount on a fixed schedule regardless of what markets are doing. Because the fixed amount buys more units when prices are low and fewer when they are high, it replaces timing decisions with a habit.
The mechanics: a fixed amount buys more when prices fall
The recipe has two ingredients: a fixed amount and a fixed schedule. Say $500 on the first of every month into a broad ETF or index fund, no matter what the headlines say. The interesting part is what the fixed amount does on its own: when the unit price drops, $500 buys more units; when the price climbs, it buys fewer. Here is four months of it:
| Month | Unit price | Amount invested | Units bought |
|---|---|---|---|
| 1 | $10.00 | $500 | 50.0 |
| 2 | $8.00 | $500 | 62.5 |
| 3 | $5.00 | $500 | 100.0 |
| 4 | $10.00 | $500 | 50.0 |
The average cost lands below the average price
Total invested: $2,000. Total units: 262.5. Average cost per unit: $7.62. Yet the average of the four prices was $8.25. That gap is not luck; it is arithmetic. Because the fixed dollar amount automatically loads up at low prices and goes light at high ones, the average cost per unit always lands at or below the average of the prices you bought at. In the example, the month that felt worst, month 3 with its 50% drop, was quietly the best purchase of the four.
Why it really works: behaviour first, math second
The genuine power of dollar-cost averaging is behavioural. It removes the two questions that paralyze investors: "is now a good time?" and "should I wait for the dip?" With an automatic schedule there is no decision to agonize over, no forecast to get wrong, and crucially, no pause button to press when markets are falling and every instinct says to stop. The plan keeps buying through the fear, which is precisely when the cheap units are on sale.
The honest note: as pure math, dollar-cost averaging is not magic. If you have a lump sum available, investing it all at once has historically beaten spreading it out more often than not, simply because markets rise more than they fall, and money on the sidelines usually misses more gains than it dodges losses. That is not a strike against the strategy; it is a clarification of what it is for. Most people's money arrives as paycheques, so investing it as it arrives is dollar-cost averaging, and it is exactly right. And for a windfall, spreading it over some months is a reasonable anxiety-management tool: a slightly lower expected return in exchange for never experiencing "I invested everything the week before the crash."
The Canadian autopilot
In Canada the strategy usually wears everyday clothes. An automatic contribution to a TFSA or RRSP timed to payday is dollar-cost averaging, whether or not anyone calls it that. An employer group plan that deducts from each paycheque, especially one with matching contributions, is dollar-cost averaging with a raise attached. And a DRIP quietly applies the same logic to dividends, reinvesting each payment at whatever the price happens to be. The common thread is automation: the fewer moments where a human must decide to invest, the more reliably the investing happens.
In Canada
Every major Canadian brokerage and robo-advisor supports automatic recurring contributions, and many now allow automatic recurring purchases of ETFs or index funds, which turns the full loop, cash in, invested, into something that runs without you. Pairing the contribution date with payday is the classic setup: the money is invested before it can be spent, and TFSA or RRSP room absorbs the growth tax-sheltered. If your employer offers matching in a group plan, that match is an instant return no market timing can beat.
Worked example: the pause that costs
Noah and his colleague both invest $400 a month in the same index fund. Markets fall hard and the news turns grim. Noah's automatic purchase goes through every month without asking him; his colleague pauses her contributions "until things settle down." Months later, prices have recovered and the mood improves, so she restarts, right around the old highs. Both invested through the same market, but Noah owns a batch of cheap units bought during the fear, while his colleague's pause skipped exactly those purchases. The difference was never insight. It was that one plan had no pause button.
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated August 2026