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“Rrrrraaaaagghhhh!”
“Oh help, run away, run away” (the villagers run away).
But not Bob, Bob stayed.
And then Bob got eaten.
The end.
~~~
Whoa what an abrupt and sad story… hey speaking of! I knew a Bob once… he never got eaten by anything… but he was a builder come to think of it. “Rubs chin ruefully”.
AHEM. ANYWAY the moral of the above story is if a hungry bear comes looking for food in your village – sometimes being a hero doesn’t work, because being a hero can make you someone’s lunch.

This is especially true in the financial markets as well – yknow sometimes it makes perfect sense to run away and sell everything.
GET OUT WHILST YOU CAN – A BEAR IS COMING!
And then you look back in X years time and kick yourself for exiting at just the wrong moment – when there was mass panic and hysteria and Jenny from the neighbouring hut forgot to take her pots and pans again, whatever will she cook with? And is that Bob standing all by himself, why isn’t he hurrying to leave?
Hmmm… maybe there’s a middle ground somewhere? Between rushing for the exits and staying to fight the monster that’s coming?
There is! And so we introduce the concept offff….
Step 4 – Dollar Cost Averaging
OK OK, let’s rewind a bit, for you guys who have NO idea what I am on (a comfy cushion).
I’m just continuing with answering my friend Light Beam’s question on:
“How to survive a bear market”
It’s an interesting question and I’ve already written up a couple of responses to it, being “Step 1 – Don’t panic (read here)”, “Step 2 – Think wo(man) THINK (read here)”, and “Step 3 – Survive the initial wave (read here)”.
Go back and have a read of them if you missed out!
But today we’re gonna talk about a basic concept in investing – that being dollar cost averaging.
What is dollar cost averaging?
Yeah, what is it!

Well, dollar cost averaging (DCA) is when you invest a fixed dollar amount into a particular investment on a regular basis, regardless of price.
It could be Shares, Index funds, Cryptocurrency, even Women’s Maybelline (maybe she’s born with it).
Point is the investor (you and I) end up buying more when prices are low (on sale) and less when prices are high (over-priced).
The key theme here is consistency.
That is, to invest the same amount each time, every time.
Here’s how it works.
Let’s say we have three people at your workplace – Finicky Fred, Brainy Betty and Simple Sally.
They all have the same job, same income, same risk profile and same amount for investment ($100).
Finicky Fred loves to over-analyze everything, he’s a real hands-on type of guy.
Brainy Betty doesn’t make mistakes. Period.
Simple Sally prefers to just do the time, not worry and let everything run its course.
During an investment timeline, it might go something like this:
In May, the units cost $1 each.
In June, the cost of the units falls to 90c.
In July, the cost of the units again falls, this time to 75c.
In August, the cost of the units rises to $1.20.

So how did our colleagues at work do?
Finicky Fred – Fred bought 100 units@$1 in May, umm’d and ahh’d about selling in June, then watched the price drop to 75c in July, couldn’t handle it, sold everything and went to live with his cousin in Brazil, swearing to never touch investing again. 25% LOSS.
Brainy Betty – Betty gets it right each time. She waited and waited, biding her time… UNTIL SNAP, she bought $100 worth in July@75c for 133 units, then sold in August for $1.20. A whopping 60% gain.
Simple Sally – Sally likes the good things in life, good friends, good food, good wine, she doesn’t care too much about investing, just let’s it do its thing. She bought $25 worth in May for 25 units, $25 in June for 27 units, $25 in July for 33 units and $25 in August for 20 units.
This is where it gets interesting, Sally’s use of DCA means she would own 105 units. As the price of the units is now $1.20 (August cost), the total value is $126.
But the total cost over the 4 months was $100, which represents a solid 26% return.
~~~
I dunno about you but hey, I’ll take 26% returns by keeping things simple any day of the week! Sure we can try to be Brainy Betty’s but how many of us actually do! (I myself tried once, but ended up being Finicky Fred minus the escaping to Brazil part…)

There are risks to DCA (read here), the biggest being of course, not being consistent. Because it’s so easy to be scared off when prices are tanking isn’t it?
Truly a bear market is terrifying, it always is – the uncertainty, the volatility, the sheer brutality.
But you have to stay the course – use DCA to your advantage!
Investing doesn’t have to be hard or overly technical – sometimes the best strategy is just to stay simple.
It might mean hey in a few year’s time when we look back, maybe just maybe we don’t kick ourselves for jumping out at the wrong time, and give us a pat on the back instead for being BRAVE.
(But not brave like Bob…Bob got eaten… don’t be like Bob).
What do you think? Did you enjoy this post? Please help me out if you enjoyed this and put your email in and click on the little “subscribe” button on the right hand side. This way, you’ll never miss my words of awesomeness! So do the right thing, be a subscriber and get it straight to your inbox fresh out of the oven!
P.S.
Funnily enough, for the majority of us Aussies – we already have one of the best examples in dollar cost averaging without us realizing.
This takes the form of superannuation (American cousins please note, it’s kinda like a 401k account).
For most of us working Down Under, each paycheck, our employers contribute 9.5 per cent of our salary to superannuation. This contribution is invested into our investment options within our superannuation account.
The default being “balanced” – which isn’t the worst option actually as you get a bit of everything, stocks, bonds, international exposure, Women’s Maybelline (maybe not the last part).
P.S.S.
Please note DCA is to be used as a guide only, you must, must, MUST do your own research to see if it suits you.
56 Comments
Amanda Yorton
So interesting. I don’t know much about stocks and would probably be Fred more than anything. But my husband would be Betty for sure!
The Frugal Samurai
Lucky you! Sounds like he’s got that part covered, haha I think I would swing between the 3! Thanks for reading.
Candice Laboy
I love how well this is written. Ive always wanted someone to explain stocks in this manner. I will be catching up wih the other parts. Thanks for sharing.
The Frugal Samurai
No worries, thanks for reading! Stocks can be pretty darn confusing and daunting at the best of times, we’re all just here to learn right!
GiGi Eats
Since the market rises and falls, you can’t get too worried during a bear market. You just have to ride the tide!
The Frugal Samurai
So very true! It’s just a rollercoaster tbh, what goes up must come down and vice versa! Haha, thanks for reading!
Annie
I love the easy and clear way you explain DCA with Finicky Fred, Brainy Betty and Simple Sally. It’s so easy to understand! I haven’t invested in stocks yet, but I’m interested in learning more.
xoxo
Annie
The Frugal Samurai
Thanks for reading! Happy to share and of course, we all gotta start somewhere right! First step is to learn so well done for taking that step 🙂
Anna Nwa
Thank you for explaining DCA! I’ve heard that term before, but wasn’t exactly sure what it meant. Thanks for the insight!
The Frugal Samurai
You’re welcome! Hope you enjoyed the post, thanks for reading!
Jena Leigh | Naughty Kitchen
This is a very interesting article about the money market. I started my 401k in my late 30s…Almost thought I clicked on how to survive a bear attacking my picnic table lol.
The Frugal Samurai
Hahahahahaha, that’s a very UNINTENDED consequence, would be an amazing blog post come to think of it – thanks for reading! And hope that 401k is doing well by you!
Geeky Daddy
Terrific laymen terms explanation of dollar cost averaging! Thank you!
The Frugal Samurai
No problem, hope you enjoyed the read!
Echo
The way you write this makes it fun and much easier to understand!
The Frugal Samurai
Thanks for saying so! Hope you enjoyed the read.
Deborah
Interesting. I read about a Bear market a long, long time ago… what’s the other “Tiger” I cannot re-call. But I guess sometimes you win and sometimes you lose. Sometimes more than you would like. I’m not into investing myself – bit risky and I don’t like to gamble (in that way at least) 🙂 Thanks for the post – This Aussie is a little more educated!
The Frugal Samurai
Thanks for reading! Yeah it can be pretty daunting can’t it but we all gotta learn and start somewhere! Nice to see a fellow Aussie btw!
Dani
I would hope to be a Brainy Betty, would settle with Simple Sally but truth be told most likely would end up being a Finicky Fred hehe
The Frugal Samurai
Hahaha yeah same! I’m the same, so often start off with the best of intentions and then end up panicking and stressed! Haha, thanks for reading!
Alan @ MorePassportStamps.com
I was a plonker, invested pretty heavy in DBC and am now a disgruntled bagholder…
Wish I’d read this a year ago!
The Frugal Samurai
Ah that sucks! Do you think it will ever come good, hope the paper loss is manageable – ain’t a loss until you realize it! Thanks for reading.
Brittany Vantrease
I have older, frugal relatives who earned hundreds and thousands of dollars- some up to millions because of their sense to learn about stocks and investing in bonds.
I love how you explained all of this. If my business teachers presented their lessons like this, I might have stayed awake. It was very entertaining and easy to understand.
The Frugal Samurai
Wow that’s brilliant! Good for them, you’re lucky you’ve got a perfect resource of knowledge to learn from! I totally agree about the business teachers part, academics can be oh so boring! Thanks for reading, hope you enjoyed it!
Marysa
I’m not too familiar with the market lately and all the things to know about it. Thanks for sharing these tips and strategies.
The Frugal Samurai
It’s Ok, you’ve come to the best resource for it, if I say so myself! Thanks for reading, hope you enjoyed it.
Brittany
Oh this stuff is so confusing to me! I’m so bad at this kind of stuff. Thanks for breaking it down for us all.
The Frugal Samurai
No problem at all! Hope you enjoyed the read, yeah it can be very confusing and daunting but it’s a start to learn about it!
kumamonjeng
I really enjoy your example of Fred, Betty and Sally. You post has make investment topic very interesting to read.
The Frugal Samurai
No problem at all, thanks for reading! Hope we can all learn something here!
Joanna Clute
This is such great information but it still takes a lot of time to study. I like the way you break it down.
The Frugal Samurai
Thanks for that, yeah it ain’t the easiest thing to do but we all gotta start learning somewhere right! Thanks for reading, hope you enjoyed it.
Samantha
I’m not good with this bull and bear stuff, so thanks for the information 🙂
The Frugal Samurai
It’s more bull these days than bear but good to know about – thanks for reading, hope you enjoyed it!
Tina A
I would be the last person you ever wanted to speak about when it comes to finances, however I do love your metaphors, I’m a stick around and fighter for the most part, but when I has to do with my bank account, I will run like the wind if I think I’m going to lose out. I have however started learning more about the economy and learned through the last few recessions, that it’s better to run, hold onto your money and then invest when prices are low when coming out of the recession…
The Frugal Samurai
That’s so true! When you’re caught in it the worst thing is to panic and just sell everything – prices are already down! Thanks for reading, investing ain’t easy but we all have to learn and start from somewhere right!
Jolie Starrett
Interesting read. Love your blog!
The Frugal Samurai
Thanks for reading, hope you enjoyed it!
Kim
Dollar cost averaging is a smart option to select. Here in the states as well it helps to bring balance where there is none. It is always good to keep in mind that losses are only losses on paper and not true losses until you sell. As noted in the post, research is essential to know whether a company is in trouble. Good post!
The Frugal Samurai
Thanks for reading! Yeah paper losses are just that, on paper – I like how you mention bringing balance, didn’t think of that! Thanks for reading, hope you enjoyed it!
kumamonjeng
This post have given me lot of knowledge regarding finance market and how I should do with my money in the bank.
The Frugal Samurai
Thanks for reading! Hopefully you continue going and of course, come back anytime!
Rosey
It really wouldn’t hurt me to take some time to manage my money better. I think about it but haven’t really taken any big steps to do it.
The Frugal Samurai
I know, we never seem to have enough time right! Hopefully you take those baby steps into something bigger!
Sara Welch
I am so thankful for those that try to explain all this confusing stuff to those of us that don’t have a clue. Thank you for taking your time.
The Frugal Samurai
That’s OK! My pleasure and thanks for reading, hope you enjoyed it! It doesn’t have to be as daunting as people make it to be.
Shannan P
I wish I had some extra cash to play around in the stock market. I have always wanted to try my hand at researching and investing.
The Frugal Samurai
Good luck to you, I think you should start small and be “invested” in it – see how you go, never know – might be a natural! Thanks for reading.
Kay
I have been trying to read about stocks and investments but I still don’t quite understand. I do invest in my company stock even though I don’t really get it.
The Frugal Samurai
Ooo, then first things first is to be educated in it then, lucky you’ve come to the right place if I say so myself hahaha – thanks for reading!
Donyell
This was so easy to understand by the way you write and explain everything!! Now I know more about DCA and stocks!! Thanks!
The Frugal Samurai
No worries, thanks for reading and hope you enjoyed it!
Melanie Walsh
In all things, stock markets included, balance seems to be the best plan. I hope to be able to make decisions like Sally who is so level-headed. Since I don’t have a ton of time to research, it sounds like an approach that would make sense for me.
The Frugal Samurai
Yes that’s right – sometimes the easiest and simplest thing to do is just to automate and be consistent, it doesn’t have to be rocket science! Thanks for reading.
L Michelle Williams
This is a great post. Very informing post, it gives me all the knowledge I need. Thanks for posting!
The Frugal Samurai
No worries – thanks for reading, hope you enjoyed it!