Explainer
Dollar Cost Averaging Backtest Explained
Dollar cost averaging (DCA) means investing a fixed amount on a schedule. A history checker can illustrate how that pattern would have played out in a chosen window, but it is not a promise.
Published: December 26, 2025 · Updated: December 26, 2025 · By FinToolSuite Editorial
Disclaimer
- Educational purposes only, not financial advice.
- Examples are illustrative and simplified.
- Past performance is not a reliable indicator of future results.
- Market returns can be negative.
- See the Privacy Policy for data handling details.
Open the Investment History Checker
Set a baseline scenario, then add a contribution plan to compare.
Quick answer
- DCA adds money over time instead of all at once.
- Results depend heavily on the chosen dates and the price path.
- Backtests are illustrations, not predictions.
What dollar cost averaging means
DCA uses fixed contributions on a schedule (e.g., monthly). You buy more when prices are lower and less when prices are higher, spreading entry timing across the window.
How contributions change what you are measuring
A lump sum asks “what if I bought once at the start?” Contributions ask “what if I bought gradually?” Percent returns are harder to summarize because cash enters at different times; focus on final amounts, drawdowns, and the yearly table.
Example 1: Rising market (illustrative)
| Month | Price | Contribution | Shares bought |
|---|---|---|---|
| 1 | 50 | 100 | 2.0 |
| 2 | 52 | 100 | 1.92 |
| 3 | 55 | 100 | 1.82 |
In a rising path, early contributions get more growth time; later ones have less time but still add to the total position.
Example 2: Volatile market (illustrative)
| Month | Price | Contribution | Shares bought |
|---|---|---|---|
| 1 | 50 | 100 | 2.0 |
| 2 | 40 | 100 | 2.5 |
| 3 | 48 | 100 | 2.08 |
In a volatile path, the same contribution buys more shares during the dip. Outcomes can differ from a lump sum depending on when prices move.
What the Investment History Checker assumes
If your checker supports a contribution schedule, it uses a simplified model to illustrate periodic additions. Check the tool notes for the exact timing assumptions. If contributions are not supported, compare separate scenarios instead.
Limitations and caveats
- Backtests do not include future uncertainty.
- Execution price can differ from a daily close.
- Fees, taxes, and inflation may be excluded.
- Dividends may be excluded unless stated.
- Contribution timing inside the month matters.
When DCA backtests can mislead
- Cherry picking a window that favors one method.
- Comparing different windows.
- Assuming future prices will behave similarly.
- Ignoring drawdown and stress.
Check the common mistakes list before comparing.
FAQ preview
Is DCA always better?
No. It depends on timing and price path; DCA is a pattern, not a guarantee.
Does DCA reduce risk?
It spreads entry timing, but price swings still affect contributions.
Does the tool include dividends?
Dividends may be excluded unless stated. Check the tool notes for your ticker.
What contribution frequency should I test?
Test the schedule you want to illustrate and compare with a lump sum scenario for context.
Why do results change a lot when I move the start date?
Backtests depend on the chosen window; shifting dates changes the price path and contribution timing.
Compare your scenarios
Run a lump sum and a DCA scenario in the tool, keep labels clear, and export results for your records.