Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
1.
Market timing means investing your money only when you sense that the time is right.
True. Market timing is difficult to do.
2.
When they both have the same amount of money to invest, a lump-sum investor will always outperform a dollar cost averager because of the fact that he started earlier and could therefore take advantage of time.
False. In cases where the price of the investment fluctuates up and down, the averager can actually outperform the lump-sum investor because he is sometimes buying more shares as the price drops.
3.
Why might dollar-cost averaging be useful if you are trying to get into a mutual fund with a $5,000 minimum initial investment and you don't have anything near that amount?
The fund might waive its minimum initial investment requirement if you agree to set up an automatic investment plan and invest a little each month or quarter. Many funds will give you this option.
4.
If a mutual fund's value increases every month for a 12-month period, which of the following investors most likely comes out ahead?
The lump-sum investor. With a lump-sum investment you would have purchased the most shares at the lowest net asset value--right at the beginning of the period.
5.
Dollar-cost averaging means _______.
Investing a set amount of money on a regular basis. It's an effective method of investing because it buys more shares when the price declines and fewer when the price rises.
