The Argument for Dollar Cost Averaging

I've heard a lot of talk recently about Dollar Cost Averaging in the last year, though I hadn't seen the numbers. First of all, a short explanation on DCA. The idea is to put the same amount of money into your stock account every month (or week, quarter, year), no matter what. The reasons are:

1. It helps you remember to put money in regularly, and moving toward your retirement.
2. With a promissory letter to the fund, you can start with lower amounts than normally needed - some ask for $5,000 minimum OR $200 a month.
3. If the fund is going up and down, you'll buy more shares (same overall cost) in down months.
   

I didn't really get the power of #3, and I'm a number person, so I decided to see for myself. The following took about 10 minutes to throw together in Excel, and is really indicative of the power of DCA.

Invest $50 a month
Fund price	Amount	Shares
$20.00	$50.00	2.50
$19.00	$50.00	2.63
$18.00	$50.00	2.78
$17.00	$50.00	2.94
$16.00	$50.00	3.13
$15.00	$50.00	3.33
$14.00	$50.00	3.57
$13.00	$50.00	3.85
$12.00	$50.00	4.17
$11.00	$50.00	4.55
$10.00	$50.00	5.00	50% loss
$11.00	$50.00	4.55
$11.00	$50.00	4.55
$11.00	$50.00	4.55
$12.00	$50.00	4.17
$12.00	$50.00	4.17
$13.00	$50.00	3.85
$13.00	$50.00	3.85
$13.00	$50.00	3.85
$14.00	$50.00	3.57
$14.00	$50.00	3.57
$15.00	$50.00	3.33
$15.00	$50.00	3.33
$15.00	$50.00	3.33	still down 25% after two years
Totals	$1,200.00	89.09
	$13.47	Price per share
	$1,336.34	Current value
	$136.34	Profit !
	22.7%	ROI

This is based on the fact that I started with $0 and ended with $1,200 invested, so on average had $600 in the market. How would that look - at the end of 2 years and a 25% decline in stock price to be up almost 23%? On the other hand, a steady increase in stock prices and your gains lag, since you keep buying stock at higher and higher prices. And it only helps you lose less on a steady decline.

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