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1.
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.
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.
Which of the following statements is false?
Dollar-cost averaging always leads to better returns than lump-sum investing. In a rising market, a lump-sum investor will earn more than someone who is dollar-cost averaging into a fund will. However, dollar-cost averaging limits risk, instills discipline, and often allows investors to get into high-minimum funds for less.
4.
Market timing means investing your money only when you sense that the time is right.
True. Market timing is difficult to do.
5.
Timing the market incorrectly can not only make you miss out on performance, but it can augment it thanks to _______.
Compounding. Because compounding earns you returns on previous returns, a missed market timing can, in a sense, cost you even more.
