Dollar cost averaging is basically something like buying $100 of a mutual fund every month. As the fund goes up, number of shares purchased goes down for a higher per-share price. As the fund goes down the opposite: number of shares purchased goes up for a lower per-share price.
Ultimately this leads to having a fair average share price. Of course the market doesn’t always act logically so it could advance for months then decline significantly in a day. If you continue your $100 purchase per month, you will get an even lower price per share but things might not feel very good the day your market price goes down.
Well, that’s the basics of it. There are other math-based ways to buy shares too like buying more dollars when the share price declines and less when it advances.
Warren Buffett often uses something like dollar cost averaging as he buys a stock. The idea again is to get a fair price by buying in chunks over time.
Like any other “scheme” in stock market investing, the idea is to make more money when you ultimately decide to sell. Often selling is also done in a dollar cost averaging way. Say for example you invest month by month over your entire career then withdraw month by month in retirement. Your withdrawal can also be looked at as dollar cost averaging as some months the stock portfolio will be higher priced and other months it will be lower priced.
While I mentioned buying a mutual fund every month, dollar cost averaging can be done with ETFs, individual stocks, bonds, and more types of investments. You should probably check with your brokerage provider how you might do this.
I do use dollar cost average for certain investments but I am pretty hands on with my stock portfolio.
I’m not sure what else to say about dollar cost averaging, it is pretty straightforward.