Dollar-cost averaging: How often should one use it? What criteria to use when choosing stocks to apply it to?
Dollar cost averaging is a great strategy to use for investment vehicles where you can't invest it in a lump sum. A 401K is perfect for this. You take a specific amount out of each paycheck and invest it either in a single  fund, or multiple funds, or some programs let you invest it in a brokerage account so you can invest in virtually any mutual fund or stock. With annual or semi-annual re-balancing of your investments dollar cost averaging is the way to invest in these programs. If you have a lump sum to invest, then dollar cost averaging is not the best way to invest. Imagine you want to invest 10K and you want to be 50% bonds and 50% stocks. Under dollar cost averaging you would take months to move the money from 100% cash to 50/50 bonds/stocks. While you are slowly moving towards the allocation you want, you will spend months not in the allocation you want. You will spend way too long in the heavy cash position you were trying to change. The problem works the other way also. Somebody trying to switch from stocks to gold a few years ago, would not have wanted to stay in limbo for months. Obviously day traders don't use dollar cost averaging. If you will will be a frequent trader, DCA is not the way to go.  No particular stock type is better for DCA. It is dependent on how long you plan on keeping the investment, and if you will be working with a lump sum or not. EDIT: There have be comments regarding DCA and 401Ks. When experts discuss why people should invest via a 401K, they mention DCA as a plus along with the company match. Many participants walk away with the belief that DCA is the BEST strategy. Many articles have been written about how to invest an inheritance or tax refund, many people want to use DCA because they believe that it is good. In fact in the last few years the experts have begun to discourage ever using DCA unless there is no other way.