What it models
A fixed amount bought at fixed intervals while the price changes by a constant rate:
units bought each period = amount ÷ price at that period
average cost = total invested ÷ total units
Because a fixed sum buys more units at lower prices, the average cost ends up below the arithmetic average of the prices paid. That effect is real, it is the whole mechanism, and it is the entire mathematical argument for DCA.
The constant rate of change is a model rather than a forecast. Its purpose is not to predict but to let you see the shape of the outcome in a falling market against a rising one.
The row every other DCA calculator leaves out
The last row runs the same money as a single purchase at the starting price.
That comparison is uncomfortable and necessary. Because:
- In a falling market that recovers, DCA wins clearly. Later purchases buy more units cheaply, the average drops, and the recovery lifts a larger position.
- In a rising market, DCA loses. Every later purchase pays more than the first one would have. The lump sum bought everything at the lowest price available.
- In a market that falls and stays down, both lose, and DCA loses less.
Historically, markets rise more often than they fall, which is why studies repeatedly find lump-sum investing outperforms DCA on average. That finding is correct and it is not the point.
What DCA is actually for
It removes a single timing decision.
A lump sum is one bet on one day. DCA replaces it with many small bets across many days, which lowers the variance of the outcome without raising the expected return. You are buying a narrower range of results, and paying for it with a slightly lower average one.
That is a legitimate purchase, and it is worth being clear that it is what you are buying. The version that goes wrong is treating DCA as a way to make more money, discovering it did not, and abandoning it at the bottom — which is exactly when it was about to work.
Where it differs from averaging down
The trigger, and nothing else.
DCA buys on a schedule, regardless of price. Averaging down buys because the price fell. The arithmetic is identical; the discipline is not. One is decided in advance and bounded by the plan; the other is decided while losing and bounded by nothing.