10. Which of the following is a characteristic of dollar-cost averaging?

• A. Purchasing a fixed number of shares at each interval
• B. Withdrawing funds whenever the market is volatile
• C. Investing only when the market is at its lowest point
• D. Investing a fixed amount of money at regular intervals, regardless of market price

Answer: (D)

Verified step by step guidance

1. Understand the concept of dollar-cost averaging: It is an investment strategy where an investor consistently invests a fixed amount of money at regular intervals, regardless of market conditions or price fluctuations.
2. Recognize the key characteristic of dollar-cost averaging: The investor does not attempt to time the market or predict its highs and lows but instead focuses on regular contributions over time.
3. Eliminate incorrect options: Purchasing a fixed number of shares at each interval is not dollar-cost averaging, as the number of shares purchased varies depending on the share price. Withdrawing funds during market volatility contradicts the principle of consistent investing. Investing only when the market is at its lowest point involves market timing, which is not part of dollar-cost averaging.
4. Identify the correct option: Dollar-cost averaging involves investing a fixed amount of money at regular intervals, regardless of market price. This strategy helps reduce the impact of market volatility and averages out the cost of investments over time.
5. Apply this concept in practice: To implement dollar-cost averaging, set a fixed investment amount and schedule (e.g., monthly or quarterly) and stick to it, regardless of market conditions. This disciplined approach can help mitigate emotional decision-making and build wealth steadily.