Which statement best describes dollar-cost averaging?

• A. Investing a fixed amount on a regular schedule regardless of price.
• B. Investing a fixed number of units on a regular schedule.
• C. Trying to time the market by buying only on dips.
• D. Holding cash and waiting for a target price.

Answer: (A)

Investing a fixed dollar amount at regular intervals regardless of price is dollar-cost averaging. By putting the same amount into a fund each period, you buy more shares when prices are low and fewer when prices are high, which smooths your overall cost per share over time. This approach reduces the influence of market swings and removes the urge to time the market, since you’re committing to invest on a schedule rather than chasing price quirks.

The other ideas describe different strategies: investing a fixed number of units would not adjust for price changes, so your total exposure could swing unpredictably; trying to time the market by buying only on dips is market timing, not dollar-cost averaging; holding cash and waiting for a target price means you’re not investing at all.