Is DCA Investing Overrated? Maybe.

August 16, 20227 min read
Is DCA Investing Overrated? Maybe.
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways

  • Dollar cost averaging is an investment strategy in which the investor invests a fixed dollar amount on a regularly recurring basis — usually monthly.
  • Some investment professionals claim that this enables investors to purchase shares at a lower average price over time as it reduces general day-to-day volatility.
  • Other investing approaches have proven slightly more lucrative, although they entail potentially greater risk.

Dollar cost averaging, or DCA, is an investment strategy in which recurring, incremental investments are made on a recurring basis. Compare this to lump sum investing in which the total investment capital, whether it’s for a stock, exchange-traded fund (ETF), or other security is employed all at once. 

The rationale behind dollar cost averaging is that by spreading the purchase over a longer period, fluctuations in share prices can be avoided, as opposed to trying to time the market for the perfect time to buy. Many financial pundits consider this to be a sound strategy, but is DCA investing overrated? Maybe.

Why DCA can be useful

Price fluctuations are inherent to the nature of stocks, ETFs and other types of publicly traded securities. Ideally, a capital investment is made when the acquisition price is lowest, in order to maximize gains over time. However, timing the market is very difficult. To counter this, some investors will purchase small blocks of a security over time to benefit from price drops. 

The strategy is more commonly employed than people may realize. Investments in 401(k) plans are a classic example of dollar cost averaging. Securities purchases are made each pay period, with an equal amount of money. In this way, large blocks are gradually acquired. This manages the price risk of investing at the “wrong” time, which in turn serves as a potential hedge against market volatility.

How DCA works

Consider a scenario in which an individual gets a windfall of $25,000. Deciding to invest the money, rather than spend it on something frivolous, the person is faced with a couple of choices. They could invest the entire $25,000 all at once, or they could divide the $25,000 into 12 equal increments and feed the money into the investment gradually over the course of a year. 

Should the price of the stock drop immediately after investing the lump sum, the investor will likely experience a setback. With dollar cost averaging, if the price drops right after the initial purchase, the investor can take advantage of the lower price the following month. Moreover, should the decline continue, the investor can get even more shares at that lower price over the course of the year.

The investment may eventually begin to pay off — assuming the fundamentals of the company in which the investments are made are sound and the company’s stock ultimately appreciates in value. 

Rise above Volatility

Diversify beyond the stock market with Yieldstreet.

Who can benefit from DCA

Investors with a low risk tolerance may find their investment preferences met by employing a DCA strategy. Investing a lump sum, only to see the value of the investment immediately decline, can be profoundly unsettling. The reaction of many people would be to sell out of the investment and buy into something else. The problem with that, however, is that panic selling usually opens the investor to timing risk

Rather than trying to time the market, dollar cost averaging increases the investor’s time in the market, which can yield a more favorable result. As an investment strategy, market timing fails more often than it succeeds.

Investors with more experience in the market and the cash on hand may prefer lump sum investments, as they may feel they have a better handle on the ebbs and flows of the broader markets.

With DCA, there is often no need to watch the market closely, as the strategy functions automatically. DCA also mitigates the potential for impulse investing as it relieves the investor of questioning whether to buy now, wait for earnings reports or hold out for a potential market dip. 

The bottom line is that investors concerned about market volatility and the risks it presents, or those who are prone to make emotional investment decisions, may likely be better served by DCA.

DCA limitations

With all the above said, history does tend to favor lump sum investing, albeit by a very small margin. A study conducted by Vanguard, as reported by Forbes, found that lump sum investing beats dollar cost averaging about 2/3 of the time over a 10-year period. 

Moreover, given our scenario above of an individual gaining a $25,000 windfall, they would be holding on to much of that money in the form of cash for a longer period, incurring opportunity losses. After all, the entire windfall could have been put to work sooner, potentially earning more. 

Yes, risk can potentially be reduced with DCA, but given that risk and reward go hand in hand when it comes to investing, avoiding risk can also mean foregoing reward. This isn’t true in the case of a 401(k) plan, because the investor is getting the cash gradually, rather than all at once. Further, the money is being put to work as it is earned. 

Another downside of dollar cost averaging is increased exposure to brokerage fees. In some cases, each new purchase could trigger another round of transaction costs, which could outpace potential returns. 

DCA alternatives

Value averaging requires an investor to set a target growth rate for their portfolio and add to it as required to maintain the prescribed rate of growth. This necessitates close monitoring, so that the investment contribution corresponds to fluctuations. 

If the value of the portfolio increases, the contribution is diminished. If the value of the portfolio drops, a correspondingly higher contribution is made. In this way, more shares are purchased when prices are lower and fewer purchases are made when prices are higher. Generally speaking, value averaging does tend to outperform dollar cost averaging, although again, it requires more effort on the part of the investor.

Buying the dip” is a strategy wherein purchases are made when the market has declined below a pre-determined level. The challenge here is setting the most favorable buy threshold. Set too low, purchases may never occur. Set too high, the investor risks making a sizable purchase just before the price drops further. Another potential concern associated with buying the dip is the amount of time investors must spend analyzing market trends. 

Meanwhile, an incremental investment is made periodically with DCA, regardless of the degree of fluctuation. Buying the dip requires constantly running the numbers to determine if the time is right to buy. With that said, if one is intent on pursuing the dip strategy, its best use demands a long-term approach. Buying the dip for short-term trades generally loses out to passive buy-and-hold investing.

Alternative investments and private markets

Regardless of the acquisition strategy an investor chooses to pursue, maintaining portfolio diversification can serve as a hedge against market volatility. Traditional asset allocation envisions a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split incorporating 20% alternative assets may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, these private market investments tend to be less correlated with public equities, and thus offer potential for diversification. This can help protect a portfolio during periods of extreme market downturns.

Alternative assets were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors who buy in at very high minimums — often between $500,000 and $1 million.  Yieldstreet was founded with the goal of dramatically improving access to alternative assets by making them available to a wider range of investors. Learn more about the ways Yieldstreet can help diversify and grow portfolios.

Is DCA investing overrated?

Investors should consider their tolerance for risk and their overall investment goals to appropriately answer this question for themselves. It is also wise to take their investing experience and the amount of cash they have on hand to fund investments into consideration.

Studies have shown that lump sum investing (given the cash to pursue it) can outperform dollar cost averaging. Value averaging also holds the potential to outperform dollar cost averaging, as does buying the dips — if the investor has a steady stream of investible funds. However, these methods require an investor to engage in constant monitoring and have a significant tolerance for risk.

Dollar cost averaging, while potentially less lucrative, helps mitigate those concerns, even while often delivering comparable — if slightly lower — returns. According to Forbes, because it is impossible to predict future market drops, dollar cost averaging can offer solid returns while potentially reducing the risk an investor experiences in the 33.33% of cases in which lump sum investing falters by comparison to DCA.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Plaid, and Footprint and none of such entities is affiliated with Yieldstreet. By using the services offered by any of these entities you acknowledge and accept their respective disclosures and agreements, as applicable.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure