What you'll learn
- Define dollar-cost averaging
- Explain why time horizon matters
Dollar-cost averaging means investing a fixed amount at regular intervals. It can reduce the pressure of trying to pick the perfect entry date, but it does not eliminate risk or guarantee a better result than other approaches.
Time horizon is how long money can remain invested before it is needed. A longer horizon may allow more time to ride through volatility, but investments can still lose money.
Match risk to timing
Money needed soon may not have enough time to recover from a market decline. Longer-term goals can sometimes accept more uncertainty, depending on the learner's situation and risk tolerance.
Example
A person investing monthly for a long-term retirement goal has a different time horizon from someone saving for tuition due next semester.