Dollar-Cost Averaging
Investing fixed amounts periodically to mitigate market timing risks.
Detailed Description
Dollar-Cost Averaging
What is the primary goal of dollar-cost averaging?
The primary goal of dollar-cost averaging is to reduce the impact of market volatility on the overall purchase by investing a fixed dollar amount at regular intervals.
How does dollar-cost averaging differ from lump-sum investing?
Dollar-cost averaging involves investing fixed amounts regularly, while lump-sum investing entails putting a large sum of money into an asset all at once.
Who is dollar-cost averaging particularly suitable for?
Dollar-cost averaging is particularly suitable for new investors, individuals with limited capital, or those who prefer a systematic approach to investing.
What is a common mistake investors make with dollar-cost averaging?
A common mistake is failing to stick to the plan during market downturns, which can lead to panic selling or reduced contributions.
Does dollar-cost averaging guarantee profits?
No, dollar-cost averaging does not guarantee profits and can lead to losses if the asset's price continues to decline over time.