So, Dollar Cost Averaging, a lot of
people are talking about it.
What is it?
Why should you do Dollar Cost
Averaging? And does it make
sense? Is this a good strategy
or is Dollar Cost Averaging
not so good and just plain stupid?
What I want to show you in this
video is some real-life examples
so that you see what Dollar Cost
Averaging is, how exactly it
works, and whether you should be
doing it or not.
So let's get started.
So let's talk about Dollar Cost
Averaging. What does it mean?
It means that originally it
comes, I believe, from the 90s
when the stock market was just going
up. And the idea here was something
that the financial planners
really promoted in the 90s is
take some money every month
and invest it in a stock.
Use the exact same amount,
that is the idea of Dollar Cost
Averaging. For example,
$1,000 and every single month
you're buying this particular stock
that you're looking at for $1,000.
And I want to show you an example of
Apple right here.
So here's what I did this morning.
I went back over the past 17
months so from January 1st,
2019, and I
actually looked at the price of
Apple in the beginning of the month.
Yes, I did spend some time to show
you some real-life examples.
So the idea here is that you
would invest $1,000
a month buying Apple shares.
Now, when a share costs
$154.89, so this was the price of
Apple on January 1st, 2019,
you would buy 6 shares.
6 shares means that you would have
invested
$929.34.
So here's the next month, on
February 1st Apple is slightly
higher, as you can see, it is now
trading at $166.96.
So if now you want to invest
$1,000 you can
only afford to buy 5
shares because now
you're investing
$834. If you would buy 6 shares,
you would invest more than $1,000
and the rules for the Dollar Cost
Averaging is that you have a maximum
amount and you stay below.
So you bought 6 shares for
$154, and 5 shares for $166.
This means that you now have 11
shares and the average price
is $160.
So you keep doing this
every month and you see your average
price changes.
After, if you do this for
17 months, again, right now we
are in May 2020,
you would have accumulated a total
of 69 shares.
And over these 17 months you would
have invested around $15,000
to be exact, $14,998.
So the idea here is that you invest
a fixed amount every month.
Now let's take a look at an Apple
chart really quick here and see
what has happened since January
1st, 2019.
Right here, I marked it in green.
So as you can see, Apple has
been consistently going up, yes,
it has been hit by this pandemic
that we had and is now
nicely going up.
So what does this mean for your
69 shares that you would have
accumulated over the past 17
months? Well, 69 shares
and the current price right now of
Apple is
$317. So this means the current
value of your 69 shares
is $21,934,
which means that you would have made
a profit of around
$7,000.
So if you express this in percent,
it would be a gain of 46% over
this past 17 months or
33% per year.
So based on this example,
it seems that Dollar Cost Averaging
is a pretty good idea where you are
investing a fixed amount regardless
of what the price is.
So the idea here is really to make
trading or investing
as easy as possible for everybody
by not worrying about the stock
price. That is the main concept
of Dollar Cost Averaging.
But is it really a
good idea?
So I chose two more stocks
to show you what happened if you
chose a stock like, for example,
IBM, right?
I mean, IBM is a stock in the Dow,
IBM solid company.
So why not investing in IBM?
If you remember, back in the days, didn't everybody
say invest in IBM and also
AT&T?
So these are the two stocks that I
want to look at right now.
But is this making sense thus far
what I've shared with you?
Because if it is, do me a favor and
click on like.
This way I know whether I'm going
too fast or too slow.
I want to make sure that these
videos are really helpful for you.
OK. So here in the next example,
we are looking at IBM.
So IBM, the same deal, in
January 1st, 2019
IBM was trading at
$112.01 so we could buy 8
shares and invest a total of
$896. And you see IBM's price
fluctuate between $112
to
$134, goes even up to $140.
And you see we're following the
exact same principle that we did
with Apple, where we are just buying
shares for $1,000 always
on the first of the month regardless
of the price, and therefore we are
adjusting the number of shares.
So after a year, we would have
accumulated 120
shares with an average price
of $132.
That is the idea of Dollar Cost
Averaging, right?
That your average price for
these 120 changes
every month as you are buying more
stocks.
So we would have invested around
$16,000 as
you can see here.
So $15,919.
Now as of today, today is
May 21st, 2020,
the current price of IBM
is $120.
So let's take a look at the charts
before we come back to the results.
So we're looking at IBM and
we are doing the exact same strategy
that we did with Apple.
We start on January 1st, 2019,
and every month we are investing
a fixed amount.
And as you can see, IBM has not
been going up as nicely as Apple.
And that is exactly the problem
because if you look now at the
Dollar Cost Averaging, we see
that over these past 17 months
we would have actually lost
$1,500. That's a loss of 10%
over 17 months or
7% a year.
So what does this mean?
Is Dollar Cost Averaging a good idea
or not?
Now, before I answer that question,
let's take a look at one more
example, because what everybody
always said over the years,
"Invest in AT&T. This what grandma
did," right?
Didn't grandma invest in AT&T and
hold the stock forever?
So I thought let's use this as an
example and we do the exact same
thing here. Now, since AT&T is
trading at a much lower price,
we can afford to buy more shares.
After the course of 17 months
we would have 405
shares, we would have invested
around $16,800.
And let's see what AT&T
did over the past year and
a half.
So let's take a look at a chart and
it does look very similar to
IBM. Actually, it does look
a little bit better, AT&T was going
up until the pandemic hit.
And right now, they still seem to be
hurt as of May 21st, which
is today.
So what does this mean for the
Dollar Cost Averaging?
If we look at the current price of
$29.64,
the current value is almost
$15,000.
We did invest almost
$17,000 so we are sitting on a loss
of $1,842,
this is 11% down over
17 months or 8%
down over the past year.
So what does this mean?
Well, first of all, Dollar Cost
Averaging is a concept that comes
from the 90s and this is when
the markets were just going
up-up-up. Now, right now, we are
coming out of the longest bull
market in history.
It has been for 11 years, so
it should actually work like a
charm. But as you see, the critical
part, the absolute key,
so that Dollar Cost Averaging works
is to pick a stock like
Apple that is constantly going
up. And, hey, can you be sure that
you're picking the right stock?
So I personally think that Dollar
Cost Averaging is kind of a stupid
concept. It is super simple,
but I believe if you put a little
bit of effort in learning how to
trade, that you can run circles
around the market.
Because even if you look back at
our example of Apple, and we see
that with Apple, we made
33% per year,
the way how I personally trade
I only spend maybe
15 minutes a day to trade.
And my goal is to make at least 60%.
Recently, I traded an account and
almost doubled it in two months.
Right now, I'm trading another
account where I'm planning to make
at least 10% per month.
So as you can see with a little bit
of effort, I believe that you
can run circles around Dollar Cost
Averaging. Therefore, I highly
recommend that you learn more about
how to trade and don't fall
for the simple kindergarden
principle here of Dollar Cost
Averaging. And by the way, if you
would like to know how I trade
I've written the book, The PowerX
Strategy, and I'll be happy
to send you a free copy of the book.
It's 117 pages
around and all I ask is that you
cover shipping and handling which is
just $4.95.
So if you want to do this, there's
probably a link right below the
video. Take advantage of this only
until we have books.
I do believe we have another 1,000
books, but they are going really,
really quick, trust me on this one.
So anyhow, hope that helps.
This is my take on Dollar Cost
Averaging and now you have some
real-life examples and
you can judge whether this makes
sense for you or not.
I believe investing a few
hours, or maybe a few days or weeks,
and learning how to trade,
you'll be much smarter and run
circles around people that do Dollar
Cost Averaging.
Hey, I hope that you find it
helpful. If you did there's probably
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