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For retail investors, a fundamental question emerges: Should you try to time the market to buy low and sell high, or invest consistently regardless of market conditions?
Dollar-cost averaging (DCA)—investing equal amounts at regular intervals regardless of market conditions—is widely championed by financial advisors as a disciplined approach that reduces risk and emotional decisions. “Dollar-cost averaging into quality investments—think ETFs [exchange-traded funds], blue-chip stocks, and even undervalued sectors like utilities or health care—can be powerful,” Stoy Hall, CEO and founder of Black Mammoth, told Investopedia.
Meanwhile, attempting to buy at market lows and sell at highs potentially maximizes returns but requires precision that even professional investors struggle to achieve. As volatility shakes the markets, understanding which approach better serves your financial goals is crucial.
Key Takeaways
- DCA, a strategy of investing fixed amounts at regular intervals no matter what, tends to match or beat many market-timing strategies.
- Market timing attempts to buy at market lows and sell at highs but requires precision that even professional investors struggle to achieve consistently.
‘Time in the Market’ vs. ‘Timing the Market’
Investors are often split between those looking for “time in the market” (seeking gains from long-term investing) versus those trying to “time the market” (those buying the dip and so on).
“To figure out your style, pay attention to how you feel during different market situations,” Yvan Byeajee, author of Trading Composure: Mastering Your Mind for Trading Success, told Investopedia. “By reflecting on these emotional responses and aligning them with your strategy, you’ll start to define a style that fits you best, which means that your decisions will feel more natural and effective.”
DCA provides a consistent routine without difficult decisions during turbulence. David Tenerelli, a financial advisor at Values Added Financial, said that for more people trying to time the market is a “folly.” But that doesn’t mean DCA is always easy emotionally. “It takes discipline to continue to buy investments during a market downturn,” he said. “A shift in mindset can help—rather than fearing financial loss, an investor can reframe it as buying stocks ‘on sale.'”
DCA’s biggest drawback appears during strong bull markets, where early lump-sum investing would yield higher returns—assuming you had both the money on hand and foresight to time it right. “Forget trying to ‘time the bottom,'” Hall said. “Nobody knows when that hits, not even the so-called experts.”
Market timing sounds appealing in theory—buy low, sell high, and maximize returns. However, executing this strategy successfully requires predicting market movements with remarkable accuracy, a feat that even professional investors rarely achieve consistently.
What the Research Tells Us
Researchers have compared how different strategies would have performed over time.
Research in the Journal of Financial Issues, which analyzed 30 years of S&P 500 data, compared DCA against three market timing strategies. Over this period, DCA produced a 254% return, outperforming market timing approaches (whose net returns ranged from 227% to 252%). Only a theoretical “perfect foresight” strategy—assuming impossible market prediction abilities—consistently outperformed DCA, with a 289% return.
Other studies looking at different periods provide additional nuance. Galaxy Asset Management looking at crypto and S&P 500 fund data from 2007 to 2024, found DCA coming out ahead for both kinds of assets. “Dollar-cost averaging simplifies investing, mitigates emotional biases, and often delivers better outcomes than buying the dip, even in extreme market scenarios,” it concluded.
Other researchers have found that modifying DCA—say, by attempting to buy more shares at market lows—can provide more benefits than market timing or DCA alone. This happens to match, in fact, what many investors already do: practice DCA while setting aside a small percentage to “play the market.”
The Bottom Line
While market timing might occasionally produce great results, DCA offers a more reliable path for most investors, particularly those investing for long-term goals like retirement. By reducing the impact of market volatility on your investment decisions and creating a disciplined investment habit, this strategy helps overcome the psychological barriers that often prevent long-term growth.
