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Funds 106: Methods for Investing in Mutual Funds

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1.
Timing the market incorrectly can not only make you miss out on performance, but it can augment it thanks to _______.
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Compounding. Because compounding earns you returns on previous returns, a missed market timing can, in a sense, cost you even more.
2.
Which of the following statements is false?
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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.
3.
If a stock mutual fund was very volatile over a 12-month period, which of the following investors most likely comes out ahead?
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The dollar-cost-averaging investor. The dollar-cost-averaging investor has probably accumulated more shares than either the timer or the lump-sum investor and had some uninvested cash on hand when the lump-sum investor was losing money.
4.
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?
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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.
5.
Market timing means investing your money only when you sense that the time is right.
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True. Market timing is difficult to do.