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Speaker 1: Welcome to Ask Fear and Agreed, where we answer questions

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Speaker 1: about business, investing, economics, politics and more. I'm Michael Thompson, and.

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Speaker 2: Hello, Sean Aylmer, Hello Michael John.

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Speaker 1: You know how pretty much every day we say on

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Speaker 1: Fear and Greed that you should seek financial advice when investing,

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Speaker 1: all that kind of thing. So recently I had a

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Speaker 1: conversation with the financial planner that we have been seeing,

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Speaker 1: and in this conversation a term came up, and it

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Speaker 1: is a term that I've heard a lot, and I

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Speaker 1: would love to ask you about it. It is dollar

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Speaker 1: cost averaging, and you hear about it a lot in investing,

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Speaker 1: and I thought that's a good one for Ask Fear

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Speaker 1: and Greed.

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Speaker 2: It is a good one. So dollar cost averaging is

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Speaker 2: a very sensible strategy according to many financial planners. This

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Speaker 2: is my opinion though I think it's a great strategy.

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Speaker 2: In fact, I do it on my homeland, so it's

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Speaker 2: not something you just do on equities normally talk about it.

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Speaker 2: You can do it in all sorts of ways. So

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Speaker 2: dollar cost averaging is rather let's say you've got one

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Speaker 2: thousand dollars to buy in shares, and you can go

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Speaker 2: and buy them all today, or you could spend two

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Speaker 2: hundred and fifty dollars today, two hundred and fifteen a

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Speaker 2: month's time, two hundred and fifteen a month's time, the

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Speaker 2: final two hundred and fifty in four months time. Basically,

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Speaker 2: so you're averaging the cost of what you're spending over

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Speaker 2: time rather than doing it all at once. The advantage

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Speaker 2: today the share price. Let's say you buying Commwealth Bank shares.

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Speaker 2: You're going to buy one thousand dollars worth of Commonwealth

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Speaker 2: Bank shares, which actually doesn't buy that many Comonwealth Bank

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Speaker 2: shares that say it's four of them. At the moment,

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Speaker 2: you don't know whether Commonwealth Bank is expensive or cheap.

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Speaker 2: So if you average it out over four months, you

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Speaker 2: take out some of your downside risk. You also potentially

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Speaker 2: take out your upside gain. But investing is about spreading risk,

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Speaker 2: and so the whole idea of dolo cost averaging is

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Speaker 2: that a little bit a lot rather than one big clump.

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Speaker 1: Okay, And you mentioned that you also then apply this

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Speaker 1: to your mortgage.

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Speaker 2: So I apply the concept to my mortgage. So maybe

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Speaker 2: it's not called dolo cost averaging. So but you know,

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Speaker 2: three or four years ago we had a big mortgage.

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Speaker 2: Didn't know whether to go with a floating rate or

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Speaker 2: a fixed rate, like a variable rate or a fixed rate.

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Speaker 2: So I put fifty percent in fixed rate mortgage rate

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Speaker 2: because I'm half right, half wrong, and that actually spreads

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Speaker 2: your risk. So however you invest or, you're paying things off.

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Speaker 2: I kind of like the idea of dolo cost averaging.

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Speaker 2: I mean, I suppose the mortgage isn't actually dolo cost averaging,

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Speaker 2: but the concept is the same. The idea with dolo

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Speaker 2: coast averaging and investing is that when you're accumulating investments

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Speaker 2: over many years, which you probably will do given your

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Speaker 2: relative at.

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Speaker 1: Youth, relative to anyone in particular in the studio.

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Speaker 2: There's two of us here, mon, sure who you're talking about.

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Speaker 2: Just if you invested, you know, every six months for

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Speaker 2: the next ten years, then that's dolar coast averaging and

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Speaker 2: you will just slowly, slowly build and spread your risk.

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Speaker 2: Now Buffett was a Buffett used to talk about dolo

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Speaker 2: cost Warren Buffet used to talk about dolo coast averaging,

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Speaker 2: and he used to say, be more aggressive when prices

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Speaker 2: are low and less aggressive when they're high, which is

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Speaker 2: kind of true, but you're never quite sure when prices

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Speaker 2: are low when they're high. But he kind of believed

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Speaker 2: in dolar coast averaging, but if the price is relatively high,

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Speaker 2: don't dolar coast savage quite as much? And vice versa.

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Speaker 1: Okay, And we are, of course very big fans of

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Speaker 1: getting financial.

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Speaker 2: Advice, big big fans.

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Speaker 1: Yes, And there's a very good chance that if you

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Speaker 1: talk to a financial planner, dolar cost averaging will come

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Speaker 1: up at some point.

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Speaker 2: Right, Yeah, I think technically dolar cost average is actually

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Speaker 2: investing the same amount all the time over time. So

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Speaker 2: the strict definition of very very strict, yes, But the

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Speaker 2: general gist of it, yeah, is kind of spreading the risk.

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Speaker 2: I like that good.

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Speaker 1: It's very feel good one today, isn't it. It is

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Speaker 1: definitely all right, well answered, Thank you, Sean, Thank you, Michael. Remember,

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Speaker 1: if you've got your own question, perhaps you've had a

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Speaker 1: conversation with a financial planner and want to delve into

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Speaker 1: a term that they've said, I don't know, that's a

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Speaker 1: very niche kind of scenario that might have come up.

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Speaker 1: But if that has happened to you and you want

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Speaker 1: to put forward something for us to discuss on, ask

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Speaker 1: fear and Greed. Then send it on through via the

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Speaker 1: website Fear and Greed dot com dot au, or head

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Speaker 1: to social media LinkedIn Facebook, Instagram, any of those. Send

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Speaker 1: a question through and we will get to it asap.

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Speaker 1: I'm Michael Thompson and this is ask Fear and Greed