Is it time to dollar-cost average into ASX shares?

Should you be buying in lump sums or dollar-cost averaging (DCA) into your favourite ASX shares in the current market?

wooden block letters spelling DCA

Image Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ASX share market falls can be scary, but could dollar-cost averaging (DCA) be the answer?

To the inexperienced investor, the March bear market made for scary viewing. In fact, even experienced investors were spooked amid unprecedented market volatility.

While it's good to buy undervalued ASX shares, you don't want to fall into the trap of market timing. After all, 'time in the market is better than timing the market', as the saying goes. 

That's where a DCA strategy can come into your investment plans and help you think long-term.

What is dollar-cost averaging?

According to Vanguard Australia, DCA is "investing the same amount of money at set intervals over a long period – whether market prices are up or down".

Essentially, dollar-cost averaging is the opposite of market timing. Obviously, ASX share prices will fluctuate over time. The good news is that if you're using DCA to your advantage, you can buy more shares at cheap prices.

For instance, let's say you invested $1,000 per month in Afterpay Ltd (ASX: APT) shares. When the Afterpay share price was trading at $40.50 per share in February that would net you 24 shares.

However, when the ASX tech share fell to its 52-week low of $9.99 in March, that same $1,000 would buy you 100 shares.

Is now a good time to dollar-cost average into ASX shares?

The simple answer is yes, it's always a good time to DCA into ASX shares.

The whole point of dollar-cost averaging is to ignore market timing. By definition, if you pick and choose when to DCA, you are going against that whole philosophy.

Of course, what you invest in is a whole separate issue. You could continue to buy beaten-down ASX shares like Star Entertainment Group Ltd (ASX: SGR).

However, DCA is more common with passive investors looking to track an index like the S&P/ASX 200 Index (ASX: XJO). Where active investors like to buy undervalued companies, passive investors trust that the market will win in the long run.

A couple of classic broad market ETFs that you could deploy a DCA strategy into are BetaShares Australia 200 ETF (ASX: A200) or Vanguard Australian Shares Index ETF (ASX: VAS).

ETFs don't just have to track the whole market. For instance, the ETFS Morningstar Global Technology ETF (ASX: TECH) provides exposure to global technology companies and could be a good option for a DCA strategy in a tech-focused portfolio.

Foolish takeaway

Using DCA can be a powerful strategy for both your own thinking and your investments. Rather than panicking in a bear market, you can think of it as a fire sale on your favourite ASX shares.

That means you can sit back, relax and enjoy the long-term investment journey.

Ken Hall owns shares of Vanguard Australian Shares Index. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ETFS Morningstar Global Technology ETF. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »