How It Works

Dollar cost averaging (DCA) means investing a fixed amount at regular intervals regardless of price. This formula helps track your true average cost per share - which will be lower than the average price if prices fluctuate.

Syntax

=total_amount_invested / total_shares_owned

Example

Monthly $500 Investment:

Month	Price	Shares Bought
Jan	$50	10.00
Feb	$45	11.11
Mar	$55	9.09
Apr	$40	12.50
May	$50	10.00
Jun	$60	8.33
Total		61.03

Average Price: =AVERAGE(50,45,55,40,50,60) = $50.00

Your Average Cost: =$3,000 / 61.03 = $49.15

You paid less than the average price because you bought more shares when prices were low.

Building a DCA Tracker

Date	Amount	Price	Shares	Running Total	Avg Cost
1/1	$500	$50.00	10.00	10.00	$50.00
2/1	$500	$45.00	11.11	21.11	$47.37
3/1	$500	$55.00	9.09	30.20	$49.67
4/1	$500	$40.00	12.50	42.70	$46.84

Formulas:

Shares: =B2/C2
Running Total: =E1+D2 (or =SUM($D$2:D2))
Avg Cost: =SUM($B$2:B2)/E2

DCA vs. Lump Sum

Which is better? Compare:

Scenario: $6,000 to invest

Lump Sum (January):

Buy 120 shares at $50
June value: 120 × $60 = $7,200

DCA ($500/month):

Buy 61.03 shares over 6 months
June value: 61.03 × $60 = $3,662

In this rising market, lump sum won. But:

Scenario: Market drops then recovers

Month	Price
Jan	$50
Feb	$40
Mar	$30
Apr	$35
May	$45
Jun	$50

Lump Sum: 120 shares × $50 = $6,000 (break even)

DCA: $3,000 buys 85.2 shares → worth $4,260 at $50

DCA wins when prices are volatile.

Calculating Future Value

Project DCA investment growth:

=FV(monthly_return, months, -monthly_investment, -starting_amount)

Example: $500/month, 7% annual return, 20 years:

=FV(7%/12, 240, -500, 0)

Result: $260,464

The Math Behind DCA’s Advantage

DCA produces a lower average cost due to buying more shares when cheap:

Price	$500 Buys
$25	20 shares
$50	10 shares
$100	5 shares

Total: $1,500 buys 35 shares Average price: $58.33 Average cost: $42.86

The “buying more when cheap” effect is called harmonic mean - always lower than arithmetic mean when values vary.

DRIP: Dividend Reinvestment

Track dividend reinvestment as part of DCA:

Date	Type	Amount	Price	Shares
1/1	Buy	$500	$50	10.00
1/15	Div	$10	$52	0.19
2/1	Buy	$500	$48	10.42
2/15	Div	$10.40	$49	0.21

Average cost with DRIP:

=SUM(Amount) / SUM(Shares)

Automation Formula

Calculate how much to invest per paycheck for a monthly target:

=monthly_target / paychecks_per_month

Example: $600/month goal, paid biweekly (26 paychecks/year):

=$600 * 12 / 26 = $277 per paycheck

Pro Tips

Automate it - set up automatic investments to remove emotion and timing temptation
Stick to the plan - DCA works best when you don’t skip months, especially during downturns
Consider employer match - 401(k) with match is forced DCA with free money
Track cost basis - you’ll need this for taxes when you sell
Don’t check daily - frequent monitoring leads to emotional decisions

Common Errors

Stopping during drops: This is when DCA works best - you buy more shares
Confusing average price with average cost: They’re different when amounts vary
Ignoring fees: High transaction fees can erode DCA benefits - use commission-free platforms

Dollar Cost Averaging