Dollar-cost averaging (DCA) is the practice of investing a fixed amount of money at regular intervals — weekly, biweekly, or monthly — regardless of what the market is doing. It's the most accessible, low-stress investing strategy available to Canadians, and it's the default approach for anyone using automatic RRSP or TFSA contributions. This guide explains how DCA works, why it's so effective, and how to set it up.
When you invest a fixed dollar amount regularly, you automatically buy more shares when prices are low and fewer shares when prices are high. Over time, this results in a lower average cost per share than if you had randomly timed your purchases.
Example: Investing $500/month in XEQT over 4 months:
| Month | Amount Invested | Price per Unit | Units Purchased |
|---|---|---|---|
| January | $500 | $32.00 | 15.63 |
| February | $500 | $28.00 | 17.86 |
| March | $500 | $25.00 | 20.00 |
| April | $500 | $31.00 | 16.13 |
| Total | $2,000 | Avg: $29.00 | 69.62 units |
Average price paid: $2,000 / 69.62 = $28.73/unit — lower than the simple average price of $29.00. During the dip in February–March, you were accumulating more units for the same $500, reducing your average cost.
The greatest enemy of long-term investment returns isn't market crashes — it's investor behaviour. Studies consistently show that the average investor underperforms their own funds because of poor timing decisions: buying after markets have risen (greed) and selling after they've fallen (fear).
DCA removes the timing decision entirely. By automating your monthly investment, you eliminate the temptation to "wait for a better price," "sit in cash until things settle down," or "put in more when there's less uncertainty." These delays always feel rational in the moment and almost always cost money in retrospect.
Wealthsimple Invest is essentially automated DCA. Set a monthly contribution amount and the robo-advisor automatically invests it in your chosen portfolio. This is the most hands-off DCA implementation available to Canadians.
Academic research consistently finds that lump-sum investing outperforms DCA approximately 2/3 of the time when the market trends upward over time. The logic: money invested today starts compounding immediately. DCA holds part of your capital in cash, which earns less, while you wait for future purchase dates.
However, DCA outperforms when markets decline after your investment date. If you invest a lump sum and the market falls 30% in the next 3 months, DCA would have bought cheaper. This is the emotional appeal of DCA, and it's valid from a behavioural perspective.
The practical conclusion: if you're investing regular income (salary, bonus), DCA is the only viable strategy — you invest as money becomes available. If you have a large lump sum (inheritance, asset sale), the research suggests investing it immediately rather than spreading it over time, if you can handle the volatility.
Counter-intuitively, market crashes are extremely beneficial for DCA investors who are still in the accumulation phase. When XEQT drops 30%, your fixed monthly $500 buys 43% more units than before. You're accumulating shares at a discount, setting up dramatic gains when markets recover.
Historical examples for DCA investors:
Mathematically, the differences between daily, weekly, and monthly DCA are minimal over long periods. Monthly is the most practical for most Canadians: it aligns with payroll frequency, minimizes transaction costs, and is easy to automate. Biweekly DCA (aligned with payroll) is slightly more effective than monthly because you're investing slightly more frequently, but the difference is negligible over 20+ years.
Both accounts are excellent for DCA. The key consideration: if your only goal is maximizing tax-free wealth, use your TFSA for DCA with growth ETFs. If you're in a high tax bracket and want the deduction, DCA into your RRSP and use the refund to top up your TFSA. This "RRSP refund reinvestment" strategy effectively doubles the power of your RRSP contributions over time.
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Get KOHO Free →Last updated: March 2026. For informational purposes only. Not financial advice.