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The Short Answer

Is Dollar-Cost Averaging Overrated?

Investing set amounts at regular intervals can reduce risk but may lead to lower returns compared with the lump-sum approach.

Question: Every year I add money to my IRA account in a lump sum. Would I be better off using dollar-cost-averaging over the course of the year?

Answer: Dollar-cost-averaging, which is a technical term for buying shares of a stock or mutual fund in equal dollar amounts and at regular intervals, is assumed by many investors and financial pros to be the best way to invest. The advantages are clear: By investing a given amount over time and in equal-sized chunks rather than all at once, the investor ends up buying more shares when prices become cheaper and fewer when they become more expensive.