Which of the following is a result of a dollar cost averaging investment strategy?
A. greater return than a buy-and-hold strategy if prices are rising
B. higher average purchase price than the average price over the long term
C. lower average purchase price than the average price over the long term
D. smaller return than a buy-and-hold strategy if prices are rising
I think it is D. Am I right
To figure out the correct answer, let's first understand what dollar cost averaging investment strategy is.
Dollar cost averaging involves investing a fixed amount of money regularly, regardless of the price of the investment. This means that when prices are high, you will buy fewer units of the investment, and when prices are low, you will buy more units.
Now, let's analyze the given options:
A. greater return than a buy-and-hold strategy if prices are rising: This statement is not necessarily true. Dollar cost averaging is a long-term strategy that aims to reduce the impact of market fluctuations, so it may not necessarily result in a higher return than a buy-and-hold strategy if prices are rising.
B. higher average purchase price than the average price over the long term: This statement is also not true. Dollar cost averaging involves purchasing more units when prices are low, which leads to a lower average purchase price over the long term.
C. lower average purchase price than the average price over the long term: This statement is correct. As mentioned earlier, dollar cost averaging allows you to buy more units when prices are low, resulting in a lower average purchase price over the long term.
D. smaller return than a buy-and-hold strategy if prices are rising: This statement is not necessarily true. The return on a dollar cost averaging strategy will depend on various factors, including the performance of the investment and the overall market conditions. It is possible for dollar cost averaging to achieve favorable returns even if prices are rising.
Based on this analysis, the correct answer is C. Dollar cost averaging results in a lower average purchase price than the average price over the long term.