What does dollar cost averaging not guarantee?

What does dollar cost averaging not guarantee?

• A. Continuous investment opportunity
• B. A higher average price
• C. A profit or prevention from loss
• D. Regular purchases of shares

Answer: (C)

Dollar cost averaging is a strategy where an investor consistently invests a fixed amount of money at regular intervals, regardless of the price of the investment. While this approach can mitigate the impact of market volatility and potentially lower the average cost per share over time, it does not guarantee a profit or prevent losses. The rationale behind this is that market conditions can vary widely; even with a disciplined investment strategy, the overall performance of the investment may decline. Therefore, even if an investor averages down on their share price during downturns, there is still a risk that the investment could lose value, leading to potential losses in the portfolio. The key focus of dollar cost averaging is on the process of investing, rather than assurance of positive financial outcomes.

Dollar cost averaging is a strategy where an investor consistently invests a fixed amount of money at regular intervals, regardless of the price of the investment. While this approach can mitigate the impact of market volatility and potentially lower the average cost per share over time, it does not guarantee a profit or prevent losses.

The rationale behind this is that market conditions can vary widely; even with a disciplined investment strategy, the overall performance of the investment may decline. Therefore, even if an investor averages down on their share price during downturns, there is still a risk that the investment could lose value, leading to potential losses in the portfolio. The key focus of dollar cost averaging is on the process of investing, rather than assurance of positive financial outcomes.