Question

An investment adviser representative may describe dollar cost averaging to a customer as:______

Answer 1

To buy a certain security using dollar cost averaging, an investor must make regular payments (let's say monthly) of a set dollar amount (let's say $100 per month).

What is dollar cost averaging?

The practice of investing a set dollar amount on a regular basis, independent of the share price, is known as dollar cost averaging. It's a terrific method to form a disciplined investing habit, increase your investment efficiency, and possibly reduce your stress—as well as your expenses.

Say you put $100 away each month. Your $100 will buy fewer shares when the market is up, but more shares when the market is down. While compared to what you would have paid if you had purchased all of your shares at once when they were more costly than the average, this technique may eventually lower your average cost per share.

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