Which scenario best illustrates the principle of dollar cost averaging in investment?

The principle of dollar cost averaging involves regularly investing a fixed amount of money, regardless of the share price. This approach allows an investor to purchase more shares when prices are low and fewer shares when prices are high, ultimately averaging out the cost per share over time. By buying shares of stock every month at different prices as described in this scenario, the investor can mitigate the impact of market volatility and reduce the risk of making a large purchase at an inopportune time, such as a market peak.

This method is especially beneficial for long-term investors, as it encourages disciplined investing and can lead to a lower average cost per share compared to making a single, lump-sum investment. Regular contributions also help to reinforce consistent saving habits, which is a key element of building wealth over time.