How often should I be investing?

Bryce: [00:00:31] Hello and welcome back to another episode of Get Started Investing. A podcast where we attempt to answer the most common money and investing questions from the community. If you're joining us for the very first time, welcome, we strongly recommend that you scroll up and started episode one. And while we are licensed, we're not aware of your personal circumstances. So all info on this show is for education and entertainment purposes. Any advice is general? With that said, my name's Bryce and as always, I'm joined by my equity buddy Ren. How are you?

Alec: [00:00:57] I'm very good, Bryce. Very excited for this episode. The question that we're answering today, I would think, is one of the most common questions we get. 

Bryce: [00:01:05] That's the idea. 

Alec: [00:01:06] Yeah, it is. The question is, how often should I be investing? And really, the subquestion within that is, should I invest? Like if I have ten grand? Should I invested as a lump sum or should I spread that investment out over time? 

Bryce: [00:01:22] And this question has come in from Kate. 

EM Community: [00:01:25] Hey, Equity Mates. I'm wondering about how often I should be investing. I want to be investing regularly and dollar cost averaging into the market, but I'm conscious of there being an optimum. Like if my brokerage costs is $10 each trade, but I'm paid weekly. Should I literally be investing every week or should I save it up and invest once at the end of the month? I'm just wondering how I should approach this. Thanks, guys. 

Alec: [00:01:48] So I think there's a couple of different ways to approach this. And I think the starting point is let's put brokers aside for a second because there's been a lot of studies done on dollar cost averaging without factoring in brokerage costs. And the general view or the general view of the studies is investing a lump sum leads to the best expected return. But psychologically, it often is more helpful to dollar cost average. But that is just based on the performance of the stock market and being in the market longer makes sense. What that doesn't factor in is the cost of brokerage. 

Bryce: [00:02:27] So when you say it fact, it is the best expected return by doing a lump sum. Elaborate on that. 

Alec: [00:02:33] It's just the classic time in the market, but it's timing the market. And you know, you're not going to pick the perfect time, but investing that lump sum and giving yourself as long a time as possible generally leads to a better outcome than spreading that investment over time. And then, you know, the later investments have a shorter time in the market because you've spread.

Bryce: [00:02:59] So it's just getting it in as soon as possible. Yeah. So that generally results in the best outcome. 

Alec: [00:03:04] So that's like the what the studies suggest without factoring in brokerage costs. And the other thing that doesn't factor in is, you know, that money, if you're spreading it out over time, what are you doing with that money? Like you're putting it in a savings account account or you're earning interest on it. That's those studies. Don't look at that kind of stuff. 

Bryce: [00:03:24] You're saying assuming I have a lump sum of 10,000, but I'm going to invest $100 a fortnight. What am I doing with the remaining. Yeah. Amount of money over that period of time. So it's fully deployed. Is that sitting in a high interest account? Is that being spent in the casino. So those are the factors. Brokerage costs expected stock market returns and the interest on savings. But you've kind of alluded to how all of that sort of works together, Ren. If you expect to earn more investing than you do saving, then you want to get it in as fast as possible. Really? 

Alec: [00:04:03] You would think so. 

Bryce: [00:04:04] Yeah. However, it is important to consider brokerage if you had ten dollars to invest today, but you paid 2 dollars brokerage, then all of a sudden the return that you were going to get from the stock market is all is eroded because you're paying a higher percentage fee in brokerage and you're putting more money in fees over a longer period of time.

Alec: [00:04:26] Yes. So in that instance, if you brokerage was $2 and you had $10 to invest today, it wouldn't make sense to try and get it in as fast as possible. It wouldn't make sense to try and invest $10 a day, because after brokerage, that's $8 going in every day, it would make sense to save it up over time and then maybe every ten days invest $100 and just pay $2 brokerage because you're not losing as much in fees. Now, if you're confused, the good news is we found a calculator that does the work for you. 

Bryce: [00:05:00] We love calculators. Just a shout out to our compound interest calculator on our Equity Mates website. 

Alec: [00:05:06] So shout out to Alf who built the compound interest calculator. Do we give him the challenge to build an investment frequency calculator? Before this episode is released.

Bryce: [00:05:16] No, we want him focusing. So this is the investment frequency calculator and essentially what it does. 

Alec: [00:05:22] Link in the show notes. 

Bryce: [00:05:23] Link in the show notes, investcalc.github.io if you want to do it as we do this. Essentially what it does. Is. You can plug in your investment frequency, how much you're going to be saving per fortnight, the interest rate on your savings and your expected investment returns, plus your brokerage. So all of the factors that we just spoke about, then you plug in and it will tell you what the optimum investment schedule is for you based on how much you want to be investing. 

Alec: [00:05:52] So let's use that example that we were talking about before. We have $10 a day available to invest and we pay $2 brokerage on that. Now, the two other things we need to put in the investment frequency calculator are our savings, what we earn on our savings. So if we don't invest it and we leave the money in a savings account, what interest do we earned? What's your current savings rate? 

Bryce: [00:06:17] 4.5%. 

Alec: [00:06:18] Oh, must be nice.

Bryce: [00:06:20] That's really nice.

Alec: [00:06:22] And then the other thing we need to put in is our expected investment returns. So long term average of the Australian share market with dividends, reinvestment is actually like dividends reinvested is actually 13%, but generally people say 8%. So let's just go with 8%.

Bryce: [00:06:39] Sure. 

Alec: [00:06:40] Okay, plug that all in, let it calculate. And the optimal investment schedule is invest $673 every 67 days. So save up that $10 you have for two months and then invest $673. And the reason, So then in this calculator, it gives what you should expect to have after ten years. If we had invested our $10 every day and paid the $2 brokerage every day, after ten years, we would have 44 grand. Pretty good. 

Bryce: [00:07:19] Yeah, not bad. 

Alec: [00:07:20] I'm trying to do the maths somewhat. $10 invested a day is over ten years. But I don't know if I'm going to be able to figure that out. Oh, yeah. No, I can't. It's about 36 grand. So we invested 36 grand and we end up with 44 grand. We made an extra $8,000 over ten years. You'd be pretty happy with that. But if we invested every 34 days, we would have $55,000 after ten years. And then if we invested every 67 days, we would also have 55,000. We'd have about $100 more. 

Bryce: [00:08:02] So it's interesting to see the comparison between the short term impact of high frequency and brokerage and then making sure that you optimise that so that you're not paying a lot in fees. And we know the impact on fees. This is just a great visual example as well. So definitely go on and plug in what you're doing. 

Alec: [00:08:19] Now, I just want to make the point. So you said your savings account pays 4.5% a year. I'm with Commonwealth Bank. I think without bonus rates they probably give me about 1.5%. So with your savings rate, the optimum investment schedule was every 67 days. That's what the calculator told us. The only thing I've changed here is the interest rate on our savings, and I've reduced it from your high rate to my lower rate, and it tells me we should invest more frequently. It's gone from investing every 67 days to investing every 49 days. And that's because the expected return difference between savings and investing that gap is bigger because of my shitty savings account. 

Bryce: [00:09:07] Ren, well, we're going to take a quick break, but on the other side, we're going to put our own investing approach through the calculator to see who is most optimised when it comes to their DCA. Welcome back to Get Started Investing, we're answering the question, how often should I be investing? And we've just had a look at a calculator online investcalc.github.io that will be in a link in the show notes that shows you the optimal frequency and amount to invest based on your how much you can invest. And some of the key factors that we spoke about around brokerage, cost expected return and interest rates. So Ren, how does yours pan out? 

Alec: [00:09:47] So I'm going to be honest, I think I broke the calculator and Bryce, me saying I broke the calculator, it was actually superhero who broke the calculator. So I invest. My core portfolio is invested with superhero. And the reason for that is firstly they allow recurring investments. So I've automated my investments, it's set up, it's all just automated. And then secondly, $0 brokerage on ETFs. And if you have $0 brokerage on ETFs, and your expected return on investing in the stock market is higher than your interest rate on your savings account, the calculator is basically just like. 

Bryce: [00:10:28] Do it, do it. 

Alec: [00:10:29] So I said, I have $200 a fortnight to invest and I did 1.5% on my savings account. I need to change my savings account. And then 8% expected investment returns, $0 brokerage and it just said invest $200 every fortnight, interestingly. So as we spoke about before the break, it calculates if you invest in different time periods, what would it look like over time? So if I invest $200 every fortnight after ten years, I'll have $78,000 if I just wait and invest $400 every month. So same amount of money, but monthly rather than fortnightly. Oh, you know what.

Bryce: [00:11:10] Should be the same? 

Alec: [00:11:11] The chart makes it look different. So if you're looking at the calculator, have a look at the chart because it's misleading. So I can up my expected interest rate on my savings account to 7.9% and my expected investment return is 8% because my brokerage is zero, it still says just invest $200 every fortnight. And that makes sense. 

Bryce: [00:11:32] Yeah, makes complete sense. And mine's going to be no different because it is no different. I do the exact same thing. 

Alec: [00:11:38] Okay. Well, if you're with superhero or if you're in the US with Robinhood, or if you have a broker that charges you $0 brokerage, the calculator may not be as helpful. 

Bryce: [00:11:50] Yeah, let's just say that you are doing what is the cheapest US ASX brokerage on the market at the moment. Stake at $3. Yeah. If we were to do investing $200 a fortnight with my juicy four and a half per cent interest rate on savings, expected returns of 8%, but you're doing $3 brokerage, it actually says that rather than investing 200 per fortnight, you should be investing $1,003 every five fortnights to optimise for the $3 brokerage being paid. This is pretty interesting. 

Alec: [00:12:26] Now I think the important caveat here is the difference between so every five fortnights you're right, that's what the calculator says is optimal. $77,763 after ten years, if you invested every three fortnights according to the calculator, you would be $60 worse off after ten years. And according to the calculator you would be $700 worse off after ten years if you just invested every fortnight. So it's important to just think about the, I guess, the quantum of difference here, like just how big that gap is in terms of dollars. But this is a pretty epic tool to just put plug in numbers in and see what is optimal.

Bryce: [00:13:13] Yeah, I mean, even the difference between zero brokerage and $3 at the optimised level is only $1,000 or so. Yeah. So it's not make or break. I think the key lesson that I'm getting from this is just get it in. Yeah, get going. 

Alec: [00:13:29] The key lesson I'm getting from this is I need to get off my arse and get to a savings account. 

Bryce: [00:13:34] We've done plenty of content on the savings account. 

Alec: [00:13:36] You know what? That's going to be my $100 challenge next month. 

Bryce: [00:13:39] Well, getting more interest. 

Alec: [00:13:41] Getting a better savings account. 

Bryce: [00:13:42] Yeah, but you need to get an extra hundred dollars in interest that month.

Alec: [00:13:45] Yeah, but like I've been saving for a house deposit If I get that and take it from Commonwealth Bank which I get the bonus on that because I'm putting stuff in every month but it's probably still like a two or three if I get go from 3% interest to four and a half percent interest. 

Bryce: [00:13:59] Five, you get five now. Yeah.

Alec: [00:14:01] And I move my house deposit savings across.

Bryce: [00:14:04] True, you're looking at thousands.

Alec: [00:14:06] Not that, but yeah. So that's okay. Anyway, I put a pin in that will return to that next hundred dollar challenge. I've said. 

Bryce: [00:14:12] Awesome. Love it. Well, if you're interested to find out how your portfolio can be optimised if. You're investing every week, every month, whatever it may be, will include a note, a link to that calculator in the show notes, but Ren, we'll leave it there. If you could please write and review Get Started Investing. It goes a long way to helping us get in front of new audiences to help people on their investing journey. Five stars would be awesome and we love hearing feedback from you, so please do write and review. It's a small way that you can make a meaningful impact to us in the Get Started Investing community, but then we'll leave it there and pick it up next week. 

Alec: [00:14:47] Sounds good.