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Funds 106: Methods for Investing in Mutual Funds

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1.
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.
2.
Dollar-cost averaging means _______.
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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.
3.
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.
4.
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.
5.
If a mutual fund's value increases every month for a 12-month period, which of the following investors most likely comes out ahead?
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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.