Dollar-Cost Averaging Flashcard

Front

What is the primary benefit of Dollar-Cost Averaging?

Back

It lowers the average cost per share and reduces the impact of volatility.

Front

Which investors can benefit from Dollar-Cost Averaging?

Back

Both beginning and long-time investors

Front

What is Dollar-Cost Averaging (DCA)?

Back

An approach to purchasing investments in which the buyer spreads out their purchases to reduce the effect of market timing.

Front

Where is a prime example of long-term dollar-cost averaging commonly found? Options: In savings accounts., In 401(k) plans., In day trading., In high-frequency trading.

Back

In 401(k) plans.

Front

Which of the following is NOT a benefit of Dollar-Cost Averaging?
Options:
It removes the pitfalls of market timing.
It can ensure you're ready to buy when events send prices higher.
It allows investors to ignore short-term volatility.
It allows investors to predict the future prices of securities.

Back

It allows investors to predict the future prices of securities.

Front

Which of the following is a benefit of dollar-cost averaging? Options: It guarantees a profit from investments., It takes emotion out of investing and helps prevent potentially damaging portfolio returns., It requires constant market monitoring., It is only suitable for short-term investors.

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It takes emotion out of investing and helps prevent potentially damaging portfolio returns.

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Who may find dollar-cost averaging especially useful?

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Beginning investors who lack experience or expertise to judge the best times to buy.

Front

What is a potential downside of using dollar-cost averaging according to the text?

Back

It can lead to higher transaction costs compared to investing a lump sum of money once.

Front

What is the general effect of using a dollar-cost averaging strategy on an investor's cost basis in their investment over time?

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It generally lowers the cost basis and can lead to greater gains on investments that increase in price.

Front

How does dollar-cost averaging help investors during market price fluctuations?

Back

It helps investors avoid making counter-productive decisions out of greed or fear.