What does dollar-cost averaging ideally aim to achieve for investors?

What does dollar-cost averaging ideally aim to achieve for investors?

• A. Maximize potential returns
• B. Reduce overall investment costs
• C. Eliminate all investment risks
• D. Accelerate capital appreciation

Answer: (B)

Dollar-cost averaging is an investment strategy that involves consistently investing a fixed amount of money into a particular investment over time, regardless of the price per share. This method aims to reduce the overall investment costs and mitigate the impact of market volatility. By regularly purchasing shares at different price points, the investor can potentially acquire more shares when prices are low and fewer shares when prices are high. This results in an average cost per share that may be less than the average market price over time, effectively lowering the overall cost basis of the investment. This strategy can benefit investors, especially in volatile markets, as it helps to prevent the pitfalls of trying to time the market. The other options present ideals that are not the primary goal of dollar-cost averaging. While it may contribute to better returns over time, maximizing potential returns is not the central purpose. Similarly, dollar-cost averaging cannot eliminate all investment risks, as market fluctuations will still affect the value of investments. Finally, while it may lead to capital appreciation, it does not specifically aim to accelerate this process, but rather to smooth out the investment experience over time.

Dollar-cost averaging is an investment strategy that involves consistently investing a fixed amount of money into a particular investment over time, regardless of the price per share. This method aims to reduce the overall investment costs and mitigate the impact of market volatility.

By regularly purchasing shares at different price points, the investor can potentially acquire more shares when prices are low and fewer shares when prices are high. This results in an average cost per share that may be less than the average market price over time, effectively lowering the overall cost basis of the investment. This strategy can benefit investors, especially in volatile markets, as it helps to prevent the pitfalls of trying to time the market.

The other options present ideals that are not the primary goal of dollar-cost averaging. While it may contribute to better returns over time, maximizing potential returns is not the central purpose. Similarly, dollar-cost averaging cannot eliminate all investment risks, as market fluctuations will still affect the value of investments. Finally, while it may lead to capital appreciation, it does not specifically aim to accelerate this process, but rather to smooth out the investment experience over time.