Dollar-cost averaging is an investment strategy where you invest a fixed amount of money into an investment at regular intervals, regardless of the price. For example, if you decide to invest $100 every month in a mutual fund, and the price of the fund fluctuates each month, you will buy more shares when the price is low and fewer shares when the price is high. This reduces the risk of making a large investment at the wrong time. If the price of the mutual fund is $10 in the first month, you buy 10 shares, but if it goes up to $20 the next month, you only buy 5 shares. Here's how it could work over 5 months: - Month 1: $100 at $10/share = 10 shares - Month 2: $100 at $15/share = 6.67 shares - Month 3: $100 at $20/share = 5 shares - Month 4: $100 at $25/share = 4 shares - Month 5: $100 at $30/share = 3.33 shares Total investment = $500 Total shares purchased = 39 shares Average cost per share = $500 / 39 = ~$12.82/share.

Market timing risk is the risk of making poor investment decisions based on predicting market movements. By using dollar-cost averaging, you avoid the pitfalls of trying to time the market and instead build your investment gradually, which can lead to better long-term results.