Model regular fixed investments and the average cost per unit that averaging achieves.
Buying a fixed amount of money each period buys more units when prices are low and fewer when high, so the average cost is the harmonic mean of the prices — always at or below the simple average. That is the mathematical benefit of averaging in. Dollar-cost averaging cannot beat a lump sum in a rising market, but it does guarantee an average cost below the arithmetic average price, which limits timing regret.
Dollar Cost Averaging
Units = Σ (amount ÷ price each period); average cost is the harmonic mean of the prices
Units = Σ (amount ÷ price each period); average cost is the harmonic mean of the prices Buying a fixed amount of money each period buys more units when prices are low and fewer when high, so the average cost is the harmonic mean of the prices — always at or below the simple average. That is the mathematical benefit of averaging in.
Dollar-cost averaging cannot beat a lump sum in a rising market, but it does guarantee an average cost below the arithmetic average price, which limits timing regret.
This calculator takes 4 inputs: Amount invested each month, Number of months, Unit price at the start, Unit price at the end. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.