With Dollar Cost Averaging, we buy small quantities of the asset over time at random intervals.

Question

BlackTom AI · Accepted Answer

The statement to evaluate is: 'With Dollar Cost Averaging, we buy small quantities of the asset over time at random intervals.'

Option 1: True
- This option claims that DCA involves buying at random intervals. In practice, dollar-cost averaging is defined as investing a fixed amount of money at regular, predetermined intervals (e.g., weekly or monthly), regardless of the asset price.
- Random intervals would defeat the purpose of DCA by introducing timing variability and potential clustering of purchases, which can undermine the strategy's goal of smoothing cost over time.
- Therefore, this option mischaracterizes the core mechanism of DCA.

Option 2: False
- This option asserts that the statement is not accurate, which aligns with the standard definition of DCA: consistent, scheduled investments rather than random timing.
- By sticking to regular intervals, an investor reduces the impact of short-term price swings and avoids trying to time the market, which is consistent with the rationale behind DCA.
- Consequently, this option correctly identifies the flaw in the statement that DCA uses random intervals.

PLAN364.001.SP25 Quiz 1 (2-17)

With Dollar Cost Averaging, we buy small quantities of the asset over time at random intervals.

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