Dollar Cost Averaging (DCA) is a simple investing strategy that mitigates the risk involved in the stock market by investing a fixed amount of money at regular intervals [ may be weekly or monthly], in stocks regardless of price fluctuations.
DCA is a popular method used by long term investors in creating fortune. This method of investing suits certain investors, who are not greedy about short term earnings.
In our earlier blog post we have covered an article on Pros and cons of DCA vs Lump Sum investing. Just go through the blog post for a clear understanding of what exactly is DCA and lump sum investing.
Let’s get back to our topic i.e. types of investors who can benefit from DCA, especially if they are looking into high growth stocks.
Who Should Look into Dollar Cost Averaging [ DCA] Investing Approach ?
Here we are going to discuss types or investors who can use the DCA approach while investing in high growth stocks.
Long Term Investors who sees the growth potential of a stock
Investors who are convinced of the long-term growth potential of the company can use this approach. For this method they don’t need knowledge on technical analysis and they don’t have to time the market. Such investors can use this methodology in generating huge wealth in the long run.
- Many investors are struggling with the best time to purchase stocks . DCA takes away this uncertainty and guarantees a steady investment.
- Investors who want to avoid emotional trading should opt for the DCA strategy.
Lets see this with an example: [ NVIDIA ]
Investing your hard earned money in NVIDIA (NVDA) over the last 15 years [ 2010 to 2025] using the DCA method would have given amazing results.
It has allowed investors to benefit from NVIDIA’s huge expansion as well as mitigating the stock market risk.
In 2010 NVIDIA’s stock price is around 0.40$ [ Below chart shows the price on monthly time frame]
In the end of March, 2025 the price had risen up to $120 [ Approx.] , reflecting significant long-term growth. [ Below chart of NVDA from 2020 to 2025 March gives you clearly insight of price growth ]
DCA Investment Strategy :
Investment Period: 2010-2025 March [ Roughly 183 Months ]
Monthly Investment: $100
Total Invested: $18,300 (over 183 months)
So if you look at the final Portfolio Value (March 2025) , total shares accumulated would be around 18,433 [ Approx.]. Based on the number of stocks and stock price in March 2025 i.e. 120$, the total portfolio is around $2,211,948.
A consistent $100 monthly investment in NVIDIA over 15 years would have grown $18,300 into $2.2 million, showcasing the massive potential of DCA in high-growth stocks.
Similarly let’s have a look at NVDA stocks performance from 2020 to 2025 March with DCA strategy.
Monthly Investment: $100
Total Invested: $6,000
Total Number Shares accumulated would be around 517 [ Approx.] and portfolio worth is around $62,054 [ 517X120$]
$100 monthly investment in NVIDIA Shares for over 5 years would have turned $6,000 into $62k. This shows the power of Dollar Cost Averaging Strategy if the stock you have chosen is high growth stock.
Recommended : Nvidia Stock Split 2024
Investors who don’t have / cannot afford Lump Sum Investment
Some investors don’t have a huge amount of capital available for investment in lump sums. DCA lets investors gradually increase the portfolio even with a lower budget.
DCA strategy makes investing more affordable, as you are buying only a fixed number of stocks at regular intervals. There is no need to save large amounts prior to entering the market. DCA is perfect for investors with a monthly salary whose aim is to accumulate huge wealth after a couple of years.
Risk Averse Investors
High growth stocks usually are characterized by greater volatility and handling such a situation is like a nightmare for Investors who are reluctant to take risks.
Using DCA Approach can limit short term risk while allowing exposure technology stocks with high returns. It is one of the safest ways to invest in high volatile stocks.
Investors Who Believe in the Tech Sector Growth Potential
The technology industry has been historically one of the fastest growing markets and companies like Apple, Tesla, Nvidia, Amazon, Google and Microsoft are live examples of it.
The DCA method allows gradual accumulation of high potential stocks. You could benefit from technological breakthroughs like AI, Block chain etc. in the near future. Stocks related to AI, blockchain are highly volatile, so investing using DCA could cut down the risk of timing the market and volatility.
Passive Investors
DCA is ideal for people who are passive investors. Those investors who don’t have time to follow the market or are not interested in tracking the market data everyday should choose Dollar Cost Averaging Strategy. Some brokerage platforms permit automated periodic investment and make the process easy.
Who Should NOT Use DCA for High-Growth Stocks?
Although DCA is a highly effective strategy, it’s not suitable for all investors. Here’s reason why it could not be the best option:
- Short-Term Traders and Swing Traders should stay away from DCA investing, as they prefer short term gains.
- Investors with huge capital and who are looking to invest in Lump sum , should avoid the DCA method. A lump-sum investment can yield a better return over DCA, provided price is near to its all time low or 52 week low.
- Risk Averse Investors
Conclusion: Dollar Cost Averaging strategy is only for long term investors who don’t have time to study the market and who don’t want to time the market. We have covered in depth information on Investors who should follow DCA strategy while investing in high growth Stocks.
If you are a believer in high growth technology stocks but are looking for a safer option, DCA is one of the most efficient investing strategies to accumulate wealth in the long run.
