Did you find this article useful?
For any investor, there's often a difficult choice to make between timing the market and time in the market. In other words, when is the right time to buy shares and how long should you hold them for?
Another dilemma you may face is whether to invest your money in small, regular amounts, or invest all at once, hoping it's the perfect moment to buy.
Whether you're a novice or experienced investor, consistency can often lead to long-term growth. This is where an investment strategy called dollar cost averaging (DCA) can help. Let's explore more.
How does dollar cost averaging work?
Dollar cost averaging vs lump sum investing
Dollar cost average investing means you put the same amount of money into an investment on a regular basis, regardless of the share price. So instead of waiting for the best time, you buy consistently, whether it's weekly or fortnightly or monthly.
This means that when the market is down, your fixed amount buys more shares. And when the market is up, you buy fewer shares. Over time, this approach can smooth out the average cost per share.
Find out more about recurring investments.
Dollar cost averaging takes away the need to actively monitor the market every day, so you don't have to guess the best time to buy. And it may even out the highs and lows caused by market volatility, so investing doesn't have to feel like a wild roller coaster ride!
Here's an example of how DCA investing works. Let's say you invest $1,000 every month in an exchange-traded fund (ETF).
| Month | Investment amount | Share price | Shares purchased |
|---|---|---|---|
| January | $1,000 | $50.00 | 20.00 |
| February | $1,000 | $45.00 | 22.22 |
| March | $1,000 | $55.00 | 18.18 |
| April | $1,000 | $52.00 | 19.23 |
| Total | $4,000 | $50.50 | 79.21 |
| Month | January | January |
|---|---|---|
| Investment amount | $1,000 | $1,000 |
| Share price | $50.00 | $50.00 |
| Shares purchased | 20.00 | 20.00 |
| Month | February | February |
| Investment amount | $1,000 | $1,000 |
| Share price | $45.00 | $45.00 |
| Shares purchased | 22.22 | 22.22 |
| Month | March | March |
| Investment amount | $1,000 | $1,000 |
| Share price | $55.00 | $55.00 |
| Shares purchased | 18.18 | 18.18 |
| Month | April | April |
| Investment amount | $1,000 | $1,000 |
| Share price | $52.00 | $52.00 |
| Shares purchased | 19.23 | 19.23 |
| Month | Total | Total |
| Investment amount | $4,000 | $4,000 |
| Share price | $50.50 | $50.50 |
| Shares purchased | 79.21 | 79.21 |
Over 4 months, you buy a total of 79.21 shares for $4,000. The average price per share is about $50.50.
If you'd put the whole $4,000 in the ETF in March, when the price was $55, you'd only have 72.73 shares. In the above example, using the DCA approach helped you end up with more shares, even when prices change.
If you have available cash reserves and feel confident that the stock you want to buy is at the right price, you could invest it all in one go. That's called lump sum investing.
If you get it right, your returns could make it worthwhile. But if you don't, you risk losing money. It's difficult to time the market, even for experts, and it can also be time-consuming to closely monitor the markets and stock prices.
That's why a dollar cost averaging strategy could work better for you. While this doesn't always outperform lump sum investing, it can make a big difference in keeping your investment plan steady.
HSBC's Investor Insights Survey found that 51% of Australian investors are investing continuously and regularly, despite market volatility.
It's encouraging to see more investors create recurring investment plans and adopting the dollar cost averaging strategy" - Donahue D'Souza, Head of Investments at HSBC Australia.
Dollar cost averaging has advantages but also some drawbacks.
Pros
Cons
Dollar cost averaging and investing is not limited to the Australian market. HSBC's 2025 Investor Insights Survey found that more Australians are recognising the value of diversification, with 64% of investors planning to diversify their portfolios in the next 6 months.
Explore: How to build a diversified investment portfolio
Exposure to international markets is also on the rise, with investors spreading their funds across North America, Europe, and the UK.
Using DCA when investing overseas can help you gradually build positions in different markets and sectors, smoothing out the effects of currency shifts and local volatility.
Learn more: Investing in international shares from Australia
It helps to have the right platform. With HSBC's WorldTrader, you can access international shares and funds in one place, making it easier to follow your DCA plan while broadening your investment mix.
Grow your wealth potential with more than 80 exchanges and over 30 markets at your fingertips.
You don't always need perfect timing or a perfect strategy to be a successful investor. By using a simple and steady strategy like dollar cost averaging, you can grow your investments and manage your risk.
You also don't have to stick with one strategy or the other. Combining dollar cost averaging with international diversification and investing a lump sum if the time is right can help you reach your long-term financial goals.
Did you find this article useful?
