Which of the following describes dollar-cost averaging?

Which of the following describes dollar-cost averaging?

• A. Investing in volatile stocks to lower cost
• B. Investing the same amount of money at regular intervals
• C. Investing a lump sum at once for maximum gain
• D. Investing exclusively in bonds for stability

Answer: (B)

Dollar-cost averaging is a strategy where an investor consistently invests a fixed amount of money into a specific investment at regular intervals, regardless of the asset's price. This approach enables the investor to purchase more shares when prices are low and fewer shares when prices are high, ultimately averaging out the purchase cost over time. This method is particularly advantageous during times of market volatility, as it helps mitigate the impact of market fluctuations on the overall investment. By fostering a disciplined investment approach, dollar-cost averaging can reduce the risk associated with trying to time the market. It encourages investors to remain committed to their investment strategy without the temptation to react impulsively to short-term market changes. The other options do not accurately reflect the principles of dollar-cost averaging, focusing instead on different strategies or asset choices that do not involve the systematic approach of regular, fixed investments.

Dollar-cost averaging is a strategy where an investor consistently invests a fixed amount of money into a specific investment at regular intervals, regardless of the asset's price. This approach enables the investor to purchase more shares when prices are low and fewer shares when prices are high, ultimately averaging out the purchase cost over time.

This method is particularly advantageous during times of market volatility, as it helps mitigate the impact of market fluctuations on the overall investment. By fostering a disciplined investment approach, dollar-cost averaging can reduce the risk associated with trying to time the market. It encourages investors to remain committed to their investment strategy without the temptation to react impulsively to short-term market changes.

The other options do not accurately reflect the principles of dollar-cost averaging, focusing instead on different strategies or asset choices that do not involve the systematic approach of regular, fixed investments.