Join Australia's most dynamic and respected property investment community

Dollar cost averaging

Discussion in 'Other Asset Classes' started by Daydreamer, 29th Mar, 2016.

  1. Daydreamer

    Daydreamer Active Member

    Joined:
    20th Jun, 2015
    Posts:
    37
    Location:
    Sydney
    Hi, I have become a big fan of this forum - the quality and quantity of information here is amazing. A relative newbie to investing, and have been mainly lurking around the property threads on this site. I have a few IPs - recently bought in Brisbane... But now I feel that property cycle may not be ideal in Sydney where I live, and so am looking at diversifying and get into share market.

    I am more of a long term view, set and forget, style - and time poor busy professional and so my time is better spent on my proper day job :)

    Right now, I would like to deploy at least $100K of my offset cash to purchase ETFs and on reading the various relevant threads here, am thinking about VAS, VTS, VGS. After that, I might look at some LIC (perhaps another $100K?). I am thinking that it is as good a time as any right now to get into the share market, which may be in a relative dip in its cycle compared to the peak of Sydney property market.

    I would be grateful for any relevant guidance here, but one specific question is regarding what would be the best way to make these investments once I decide which ETF and what proportions in my portfolio? Would you recommend that I purchase them in $10-20K parcels (I use CommSec), on different weeks/months to apply Dollar Cost Averaging? Or if I want $50K worth, should I just bite the bullet and purchase that amount? I think brokerage fee is relatively minimal as a % of the investment given the amounts concerned here. I understand that DCA is particularly useful in a declining market as it does average out the prices, although I am not really trying to time the market here and have a long term (ie. 10-15 yr+) view to my investment.

    Thank you !
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,773
    Location:
    Perth WA
    Do you have non deductible debt? if so, think about debt recycling to purchase rather than using your cash.
     
    Hodor likes this.
  3. Daydreamer

    Daydreamer Active Member

    Joined:
    20th Jun, 2015
    Posts:
    37
    Location:
    Sydney
    Thank you for the reply ! I am already debt recycling. Have paid down the PPOR loan and instead created split loans off this equity that has been used to create deductible debt.

    I'm planning on purchasing these ETFs (or other stock investments) using offset savings from my named investment loans (hence tax effective since I'm in the top tax bracket) - and the ETF will be owned by the family trust, allowing distribution of income to spouse on lower tax bracket. Although I have sufficient cash for another IP deposit, I think it is reasonable to diversify and balance up overall investment to include shares (otherwise would be very skewed towards property, although I am personally more comfortable with property than shares).
     
    Jess Peletier likes this.
  4. radson

    radson Well-Known Member

    Joined:
    4th Jul, 2015
    Posts:
    813
    Location:
    Balmain
    @Daydreamer

    Investing a Lump Sum at All-Time Highs

    The two most common options most people consider are: (1) pick a long-term allocation and put the entire lump sum to work or (2) dollar cost average (DCA) a set amount periodically over a set amount of time. The first makes the most sense from a historical perspective because stocks are up roughly 70-75% of the time a year after you invest. But those probabilities offer little consolation after the S&P 500 has risen every single year since 2009. And DCA is a slow and steady strategy that could force you to miss out on future gains. Both can be psychologically challenging.

    There is a third option that not as many people consider — value averaging. Developed by Harvard professor Michael Edleson, value averaging (VA) is a systematic strategy that is a variation on DCA that takes into account market movements for future contributions. Whereas DCA invests a set amount each time, VA seeks to put more money to work when markets have fallen and less when it has risen.
     
    Daydreamer likes this.