Dollar cost averaging

Today, Brady and I are breaking down an investing concept you've probably heard of before,

dollar cost averaging.

At its core, it's pretty simple.

Instead of trying to figure out the perfect time to invest, you consistently invest over time, whether the market is up, down, or somewhere in between.

But why would you do that? Does it actually help? And how should you think about dollar cost averaging when markets feel expensive, volatile, or just downright scary?

Today we're going to keep this high level and practical what dollar cost averaging is why investors use it where you're probably already doing it and some of the limitations you need to understand.

Welcome to Financial Fortitude, a podcast for high earners, families, and business owners.

We're your hosts, Michael Acosta

Making consistent, modest purchases of a diversified index fund can grow surprisingly large over time.

This strategy is called dollar cost averaging, or DCA.

And you can learn more about DCA pros and cons in a previous podcast I did called Should I Invest a Lump Sum or Equally Throughout the Year? And I've linked it for you in the show notes.

Habit number four, prioritize debt strategically.

A wise finance professor once told me that the secret to building wealth is to earn more but never spend more.

assume you're making a different...

DCA on the downside of the other opportunity? Yeah, I mean, look, dude, if you're doing both, you're going to be at the exact same CAGR.

No, no, no, because the CAGR is calculated point to point.

When I was in college, CAGR was a party on the beach with a beer

forward, I'm convinced of holding dollars until Bitcoin is around.

But I love the fact that Trey

is promoting Strike as a DCA tool during this.

That's a ride or die guy.

So we have the heavy hitters in our corner today.

The core tension we are exploring here, like the main battleground, is the concept of the lump sum investment versus a foundational strategy known as dollar cost averaging.

Or DCA for short.

DCA, exactly.

Well, it is a bold promise, but the material we are working with today backs it up entirely.

I think so, too.

To really grasp how dollar cost averaging achieves this kind of financial zen, I think we have to start by looking at its fundamental anatomy.

OK, let's unpack this.

It's buying at fixed intervals to reduce market timing risk.

DCA helps you sleep well at night.

It's psychologically appealing.

That's because if stocks go down, you're happier buying stocks cheaply, though your portfolio is going down.

If stocks go up, your happier portfolio is going up.

but you're somewhat sad that you're buying expensive stocks.

For that reason, DCA goes high up on our list.

That brings us to the safest, best investment strategy out there, which is passive investing.

At the start of the year, we were cautioning our investors to be more on limit orders and DCAs.

But ever since the February capitulation and we hit 60K, we were encouraging our investors for larger lump sum purchases with some maybe mild DCA running in the background just to expend the last bit of drips and drabs.

So you know, $50,000, we'd say at least put half in that market and the remaining $25,000 to get yourself a bit of blended acquisition price and, you know, see yourself if you can hit something a little bit lower and get yourself more units per dollars for what you're trying to deploy.

Put, you know, $2,000 a week or $3,000 a week to spend off the rest of the 25K over the duration of the bear market.

But if you asked me that question yesterday, I would have been telling you that the desk was pretty much still doing limits and DCAs.

You ask me this question now, all I've been seeing all day is market orders.

So it's really price dependent.

If you asked me 24 hours ago, majority of the desk would have been pushing limit and DCAs, not because that's what we would have been recommending, but that's what clients would have been asking for.

It wouldn't shock me to see us come back down to somewhere around where we are possibly a little bit higher in that pullback until inevitably we do get some sort of more like macro correction, similar to what we've seen in the past.

So to me, it's like, this is still a decent time to DCA.

So I am going to continue to DCA, but I am saving capital just because I get nervous buying your all-time highs.

I just don't like the way it makes me feel at this point.

And I don't feel as confident in the purchases I make.

I still, I'm aware that the way to make money in the market is just the dollar cost average and weight.

I just like giving myself the ability to have more capital in crashes.

So I just peel back my DCA a bit.