Timing the market vs staying invested: understanding the role of Dollar-Cost Averaging

Financial markets are inherently uncertain. Prices rise and fall, often in response to events that are difficult to predict in advance. For many investors, the real challenge is not understanding that volatility exists, but deciding when to act.

It is common to hesitate: when markets are rising, investors may fear entering too late; when markets are falling, they may worry about investing too early. This uncertainty can lead to delayed decisions, inconsistent contributions or attempts to time short-term movements.

Dollar-Cost Averaging (DCA) offers a structured alternative. Instead of relying on intuition or market forecasts, the investor commits to investing a fixed amount at predetermined intervals. The decision-making process shifts from reacting to market noise to following a predefined plan.

By investing regularly regardless of short-term fluctuations, volatility becomes part of the mechanism rather than an obstacle. Over time, this disciplined approach can help reduce emotional bias and support more consistent long-term participation in the market.

Dollar-Cost Averaging is a structured method of investing at regular intervals. Rather than attempting to identify the precise market bottom, the investor builds exposure gradually over time.

For example, instead of investing CHF 12’000 in a single transaction at the beginning of the year, an investor may choose to allocate CHF 1’000 each month. The total capital invested remains the same, but the timing of deployment is spread across multiple market conditions.

Financial markets move continuously. As a result, each scheduled investment is executed at a different price level.

• When prices are higher, a fixed contribution purchases fewer units.
• When prices are lower, the same contribution purchases more units.

Over time, this leads to an average entry price that reflects both rising and falling markets. The strategy does not depend on forecasting short-term movements. Instead, it systematically incorporates volatility into the investment process.

Historical market cycles illustrate the relevance of this approach. During periods of severe downturn, such as the early 1930s following the 1929 market peak, investors who committed capital gradually were able to acquire assets at significantly lower valuations during the recovery phase. While no strategy eliminates risk or guarantees faster recovery, regular investment during declining markets has historically reduced the impact of entering at an unfavourable moment.

The principle is not based on prediction, but on consistency.

Historical context

During the 2008–2009 financial crisis, investor sentiment reached extreme levels of pessimism. Those who continued investing regularly into broad market indices during that period participated fully in the subsequent recovery.

Long-term investors, including figures such as Warren Buffett, have consistently emphasised the importance of remaining invested during market downturns rather than attempting to predict short-term movements.

The mathematical perspective

If markets rise steadily without significant corrections, investing the full amount at the beginning typically produces the strongest outcome. Early capital exposure maximises compounding.

The practical reality

Markets rarely move in a straight line. Periods of growth are often interrupted by corrections, sometimes unexpectedly.

This introduces what is known as sequence-of-returns risk: the risk that a market decline occurs shortly after a large investment is made.

Beyond mathematics, Dollar-Cost Averaging plays an important behavioural role. Investing success is not determined solely by asset selection or market conditions, but also by the ability to remain consistent during periods of uncertainty.

Reducing emotional decision-making

Behavioural finance research shows that investors tend to buy when markets feel stable and sell when uncertainty increases. In practice, this often means buying after strong price appreciation and reducing exposure during corrections.

A structured investment schedule limits this tendency. With DCA, capital is deployed according to a predefined plan rather than short-term sentiment. The decision to invest is separated from daily market noise.

Reframing market declines

For an investor who allocates capital all at once, a 20% market decline represents an immediate reduction in portfolio value.

For an investor who is still contributing regularly, the same decline allows additional units to be purchased at lower prices. While volatility remains uncomfortable, it becomes part of the accumulation mechanism rather than purely a source of loss.

This perspective can help investors remain engaged during downturns, which is often essential for long-term results.

Supporting disciplined accumulation

Institutional investors and pension systems across Europe have historically relied on regular contributions over extended time horizons. These systems demonstrate that long-term wealth accumulation often depends more on sustained participation than on precise entry timing.

Consistency does not eliminate risk, but it can reduce the behavioural mistakes that frequently undermine returns.

Managing information overload

Frequent portfolio monitoring can intensify emotional reactions to short-term fluctuations. For long-term investors following a systematic contribution plan, daily price movements may have limited relevance.

Periodic reviews, aligned with long-term objectives, are typically more constructive than constant monitoring. A disciplined schedule combined with measured oversight can support both psychological stability and financial consistency.

Asset Choice

DCA works best on assets that have "long-term survival" DNA. You don't want to DCA into a company going bankrupt. Here are the four primary tiers:

Diversified ETFs: These track entire markets (US, Europe, or World). Since they are "self-cleaning" (bad companies drop out, winners move in), they are the ultimate DCA vehicle.

• Examples: S&P 500, MSCI World, SMI, STOXX 600…

Blue Chip Equities: Massive, cash-flow-heavy companies with a history of surviving decades.

• Examples: Nestlé, Microsoft, Roche, Mac Donald’s…

Commodities: Assets that hold value when currencies fail. Gold and Silver are classic DCA targets because they are volatile enough to benefit from price averaging but "real" enough to never go to zero.

• Examples: Physical Gold ETFs, Silver Miners, Broad Commodity Baskets…

Alternative Assets: High-volatility assets like Cryptocurrencies. Because these can drop 50% in a week, DCA is the only way to get exposure without risking a total "top-of-the-market" entry.

Critical considerations and pitfalls

Be mindful of these DCA-specific nuances to maximise your results.

The Impact of Transaction Fees

Frequent purchases may lead to excessive fees, especially on small amounts.

• Illustration: Investing CHF 100 monthly with a CHF 5 fee carves 5% from each contribution.
• Solution: Opt for quarterly intervals, select platforms offering Flat Fee Trades, or use bundled saving plans to mitigate costs.

Asset auality matters

No strategy redeems a poor investment. DCA is not suitable for speculative assets lacking long-term prospects.

The "Cash Drag"

Holding back cash for staged investments means missed opportunities during inflationary periods. In the 1970s, for example, holding too much cash resulted in eroded purchasing power. Balance DCA’s gradualism with mindful deployment to counteract this effect.

Advanced DCA: Smart adaptation

Adaptations to DCA can further refine your strategy.

Value Averaging

Rather than investing a set amount, target a specific portfolio growth trajectory. If values fall below target, you invest more; if ahead, you scale back. While potentially more aggressive, it demands discipline and close monitoring.

Buying the Dip (Tactical DCA)

A practical approach observed among professionals is to pair regular DCA contributions with additional investments if the market falls by a defined percentage threshold. For example, increasing scheduled ETF purchases after a 10% drop: a tactic that produced outsized gains for many after sharp corrections in 2020 and other historic downturns.

Theory is great for social dinners, but execution is where wealth is actually built. Most investors fail because they try to "manually" DCA. They wait for payday, look at a red chart, and suddenly decide that this month’s investment would be better spent on a weekend in St. Moritz.

To succeed, you need to fire your inner fund manager. He’s emotional, he’s flighty, and he’s probably wrong. You need a machine.

The Fee Trap: Don’t Be a "Broker’s Best Friend"

Before you flip the switch, do the math. If you’re investing CHF 100 and your broker clips you for CHF 5, you’ve just handed over 5% of your wealth for the privilege of clicking a button. That’s not investing; that’s a donation.

• The Golden Rule: Keep your fees under 1.5%.
• The Hack: If your monthly contribution is small, stop trying to be "active." Switch to a quarterly rhythm. Investing CHF 1'200 once every three months is infinitely smarter than paying three separate commissions for the same result. Your ego might miss the action, but your bank account will thank you.

Automation: The "Set and Forget" sanity saver

Modern platforms like Swissquote offer Saving Plans for a reason: they know humans are terrible at discipline.

1. Zero Friction: The trade happens while you’re asleep or stuck in a meeting. No "gut feelings," no hesitating over a "scary" headline.
2. The "Pay Yourself First" Law: Schedule your DCA for the day after your salary hits. Treat your future self like a ruthless landlord who demands rent—pay it before you have the chance to blow it on a fancy dinner.

The Pro Move: Tactical Rebalancing

If you really can't keep your hands off the steering wheel, use Tactical DCA. Keep your automated base running, but keep a "war chest" on the side. When the headlines start using words like "Meltdown" or "Apocalypse," that’s your signal. This is the only time you’re allowed to interfere: to give the machine more fuel when everyone else is running for the exits.

Anecdote: During the 2020 COVID crash, the "manual" crowd was busy googling "how to sell everything." The DCA crowd? Their automated plans just quietly bought the cheapest shares of the decade while they were busy learning how to bake sourdough. Guess who won?

The Bottom Line: If your investment strategy requires "bravery," it’s a bad strategy. Automate the process, optimize the fees and then go find a hobby.

The content in this article is provided for educational purposes only. It does not constitute investment advice, financial recommendations or promotional material.