Equal money does not buy equal units
Suppose a fictional investor contributes $100 at each of three dates when a security costs $10, $5 and $20. The purchases acquire 10, 20 and 5 units: 35 units for $300. The average purchase cost is $300 ÷ 35, about $8.57 per unit, before fees.
The arithmetic average of the three quoted prices is about $11.67. That is not the investor’s unit cost, because the purchases did not acquire equal unit counts. The contribution rule determines which average answers the question.
Available cash and future income are different situations
Investing a portion of each paycheck as it arrives is different from deliberately spreading an already available lump sum across future dates. The second choice holds some money out of the target investment while waiting. Its outcome depends on subsequent market returns and any return on the uninvested balance.
If prices rise steadily, earlier full exposure can outperform a delayed schedule. If prices fall before later contributions, the schedule may acquire units at lower prices. The result cannot be determined without the path and the comparison policy.
A lower average cost is not guaranteed safety
Regular contributions to an investment that keeps losing value can still generate substantial losses. Buying more units at lower prices does not establish that the business or exposure will recover. A disciplined purchase schedule and the quality of the underlying investment are separate questions.
Fees also matter, particularly when frequent small transactions carry fixed charges. An illustration that permits fractional units and ignores costs should disclose those simplifications rather than present its arithmetic as a personal implementation plan.
Assess the process in its actual context
Specify contribution size, frequency, intended exposure and what happens when circumstances change. Compare the method with a realistic alternative using the same cash-availability assumptions. A strategy funded by income not yet earned cannot fairly be compared with investing that unavailable money earlier.
Dollar-cost averaging is useful vocabulary for understanding a contribution process. It is not a prediction about the next market move or a promise that patience alone makes every investment profitable.
Equal $100 purchases occur at $10 and $5. Is the average unit cost $7.50?
Show the explanation
No. The purchases buy 10 and 20 units, so $200 ÷ 30 is about $6.67 per unit before fees. The simple average of the two prices answers a different question.
Sources and editorial notes
Original explanations and hypothetical examples prepared with AI assistance. Primary references checked October 16, 2026. Numerical examples are hypothetical unless explicitly identified otherwise.
- SEC Investor.gov: Dollar Cost Averaging
Equal periodic investments and the resulting variation in units acquired.