Market risk is related to the possibility that the market for an entire class of investment, such as stock, might. C. Diversification Reduces Risk Owning stocks in many companies reduces random risk. Investing in several types or classes of investments helps reduce market risk. Diversification reduces overall portfolio yield because of this reduced risk. It is very difficult to predict the business cycle let alone time the market.
Most people buy when prices increasing and sell when prices are declining.
C. Dollar-cost Averaging 1. This is the strategy of buying a specific dollar amount of an investment on a regular time interval rather than a specific number of the investment. Is the most effective method for long-term investors. Essentially one buys more of the investment when prices are lower and fewer when prices are higher thereby maximizing overall capital gains. Results in the lowest overall share cost.