Bitesize: Why we keep DCAing even when stocks are falling

Alec: [00:00:07] Welcome to Bitesize on Get Started Investing In this series we feature some of our favourite lessons, quotes and moments from the podcast. If you'd like to listen to the full episode, we've included the link in the show notes. Dollar cost averaging is a big topic in the community and we've touched on it before, but for people that are unfamiliar, it is essentially where you put a consistent amount of money into the market at a regular time interval. And when the market is expensive, when share prices are up, that consistent amount of money buys less shares or less units of an ETF or whatever. And when prices are low, that set amount of money buys more. But the consistent thing is you're putting a consistent amount of money in consistent timings. So there's a lot of questions around that at a time like this because markets are down a lot. And so people are asking, why would you be dollar cost averaging now? Why wouldn't you wait? So let's start there. What do you think about that? 

Bryce: [00:01:05] We sort of answered this in the first question being you don't know where the market is going to stop falling. So there's no point trying to time that. Why now? Well, I've been dollar cost averaging into the market over the last year anyway. And the whole point of dollar cost averaging is to do it at a consistent sort of interval so that you do get that average price, sort of dollar cost averaging in around about every quarter last year. So not often. And that was because, you know, we're at quite sort of significant highs in the market and we weren't really sure what was going to be happening, but it was still important to get in the market once this downturn started. I then moved to a more frequent dollar cost I did similar to you one Friday, then the next Friday, and then I kind of got really burnt on both of those trades. So now my approach is I'm just going to be doing once a month. The reason I've moved from quarterly to every month is because, you know, we're getting quite significant discounts in the market and we don't know when it's going to bounce. But I want to be taking the opportunity to get in at these much lower levels. So why now? Well, you know, we haven't had an opportunity like this for the last 10 to 12 years. So I see it as a great opportunity. And the whole reason of dollar cost averaging is to take out the stress. And I guess the idea of having to pick the best moment to enter a market, it takes out the timing of it and smooths things out. So there's really no reason if you're in a position to do so, that you could start and you might want to do it every two months. It is completely up to you. But I guess the key thing is to be as consistent as possible with it over a period of time. I know I've changed my frequency, but over the next period, I imagine maybe the next year I'm looking at sort of every month or so. 

Alec: [00:02:54] Yeah. Nice. Yeah. Yeah. The logic doesn't change. No. The second part of that question was would you dollar cost average into individual companies rather than indexes. 

Bryce: [00:03:04] At this stage, no. I'm very much using this as an opportunity to double down on building my base of indexes. I think right at the start of the year I said I'm going to be moving away from trying to stock pick at this stage and move into slices and indexes just to build that base. And you know, I've got three or four ETFs that I'm very keen on quite significantly building. Having said that, I'm not going to not buy companies, but I'm not going to dollar cost averaging to into individual companies at this stage. There's a lot going on in that space and I'm not paying close enough attention to a lot of them to feel comfortable. The dollar cost average in, more confident in just building my exposure to a number of indexes both in Australia and overseas. 

Alec: [00:03:50] Interesting. I mean, I take the opposite side of that. I am definitely going to dollar cost averaging to companies. There is absolutely nothing wrong with if you have a good company, if you're confident that it's going to remain solvent through this time and come out the other side even stronger, there is nothing that in fact you should be dollar cost averaging and you should be taking advantage of those lower prices. Obviously there is more risk because it's an individual company rather than a diversified bunch of companies. But you know, to take a big company that I reckon everyone is looking at right now, you know, if you want to dollar cost into Amazon, go feel like the buying opportunities for some of those companies at these prices is rare so don't feel like you have to dollar cost averaging to indexes at least this is what my personal view is but you know if you're going to put all your eggs in one basket, then you obviously run into the lack of diversification risk. So if you want to do it into individual stocks, maybe have a bucket of stocks that you do every quarter or something like that or whatever it is. But yeah, don't feel like you can't. 

Bryce: [00:04:57] No. Yeah. One of the I guess side questions that come from that is if you're doing individual companies and you don't have a lot of cash. You're obviously hit with brokerage. Yeah. And so the frequency of dollar cost averaging in is probably the thing that you need to think about. 

Alec: [00:05:14] And just as well, just get more cash. 

Bryce: [00:05:17] Not easier said than done. And maybe just a reminder from outside, our sort of rule of thumb is try to keep your brokerage at less than 1% of your trade if you can. You know, if you're buying into even pocket and you're putting in 100 bucks but you're spending $2 on brokerage each time, then as a percentage, it's quite high. So things to consider when your dollar cost average, but you have to sort of different approaches there. But neither are wrong nor right. Completely up to you how you want to do it. 

Alec: [00:05:46] Yes, I think at this point. 

Bryce: [00:05:48] If you enjoyed that bite size, you'll find a link to the full episode in the shownotes.