When is it most effective to use dollar-cost averaging?

Using dollar-cost averaging is most effective during high market volatility because this investment strategy involves regularly investing a fixed amount of money regardless of the price of the investment. In a volatile market, prices can fluctuate widely, creating opportunities to buy shares at lower prices when the market dips. This approach helps to reduce the average cost per share over time, as investors are not trying to time the market, but rather benefit from the fluctuations.

During periods of high volatility, investors can take advantage of the downward swings by purchasing more shares when prices are lower, leading to potentially greater returns when the market eventually recovers. This method fosters discipline and can mitigate the emotional stress associated with investing, particularly in uncertain environments.

In contrast, other scenarios such as investing for short-term gains might not align with the dollar-cost averaging strategy since it’s typically geared towards long-term investment horizons. Similarly, stable market conditions or economic downturns don't specifically necessitate dollar-cost averaging as strategies might be better suited to those contexts.