DCA works because it allows investors to average out the cost of their investments over time, reducing the impact of short-term market fluctuations. When prices are high, the investor will buy fewer shares with each installment, but when prices are low, the investor will be able to buy more shares with each installment.
By investing a fixed amount of money at regular intervals, the investor is less susceptible to the emotional decision-making that often leads to buying high and selling low. Instead, they are able to take advantage of the market's natural ups and downs without trying to time the market.
Over the long term, DCA can potentially lead to lower average purchase prices and higher returns than if an investor had made a single lump sum investment. However, it's important to note that DCA doesn't guarantee profits or protect against losses, and investors should carefully consider their goals and risk tolerance before implementing any investment strategy.
