Chapter 1: What common investing trap do people fall into?
Today's episode was made possible by our friends over at CommSec.
Good morning and welcome to The Daily Oz. It is Sunday, the 24th of May. I'm Sam Kozlowski.
I'm Billie Fitzsimons.
Today, we're tackling one of the most common traps in the world of investing. This idea that you should wait for this right moment to get started. Now, if you've ever looked at the market and felt a bit uneasy and just decided to hold off a little longer, this podcast is going to be just for you. Now, quick note, just before we start, this podcast is produced with insights from ComSec.
However, everything we're about to talk about was researched and written by us and the content remains entirely independent. And just to make sure we're completely above board, the information and views expressed in this podcast do not take into account your objectives, financial situation or needs. Information is general in nature and investing carries risk.
So Sam, we're talking about investing today.
One of my favourite topics.
It is one of your, I feel like actually since I started at TDA, you're one of the people that has taught me a lot about investing, shares, the share market, all of that.
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Chapter 2: How does market volatility affect investment decisions?
And I feel like at the moment it's quite a popular topic topic or maybe an unpopular topic because of how much unrest there has been in the world at the moment. And I think it has caused people to think, is now a bad time to invest if there is so much volatility or is it a good time to invest if it's down? Do you want to just set the scene for that volatility that has gone on this year?
Yeah. And I think if we're to be really specific, it's not even just the moment of volatility, but it's the uncertainty in what comes next. And when markets feel volatile, as they definitely do right now, the instinct is to definitely wait until things settle down before putting your money in the market buying shares.
It does feel like, and I've heard many people describe it like this, the cautious and sensible move. But that's almost always how it can feel. I mean, you can kind of always find reasons to try and convince yourself that it's not the right time to invest or it is the right time to invest. There is rarely, I mean, you and I work in a newsroom full time.
There's rarely a moment where everything feels calm enough that makes investing feel completely comfortable and risk free.
And usually it's at those times that it can actually be the worst time to invest because it means that shares are higher.
Yeah. And I think in order for us to be helpful, we want to kind of blow up this whole premise about there being a right time and about there being this moment where you're going to feel it's like falling in love. Like you're not just going to kind of lock eyes with somebody on the train and just go, I'm going to marry you right now.
I mean, that could happen, but for most of us, it takes a little bit more time and it's a bit more of kind of a longer process than that.
It's a completely different path to where I thought this podcast would go. Romance lessons from Sam. I love it.
Yeah, yeah. Well, there is, you know, an alternative. And that alternative is this whole saying of time in the market beats timing the market. And I know that does sound like a bumper sticker, but there is some real maths behind it. And I was keen to kind of bring that to you today and talk you through it.
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Chapter 3: What is the difference between timing and time in the market?
Yeah. But if you are in the market for an extended period of time, it will all even out. And ultimately, I mean, it depends what you have invested in. Sometimes it might long-term go down.
Totally.
But the idea is hopefully... it will grow.
Yeah. And you're totally right to point out there that there is no risk-free way to invest. So that being said, if you were to invest in ETFs, for example, that would help you to spread that risk.
Just for anyone who hasn't heard us talk about it on the podcast before, do you want to really quickly explain what ETFs are?
Yeah, an ETF is basically a basket of stocks that gives you an ability to invest in a whole range of companies rather than just in one specific company. So if you invested in an ETF that had all 100 of Australia's biggest companies in it, then you get a little slice of each 100 pies. The chance of all 100 stocks turning out badly is lower than just a bet on one stock.
And so it can help alleviate a bit of that pressure.
I want to go back. You mentioned compound interest before. And that's the key thing when it comes to investing long term. That's a key benefit, compound interest. Do you want to explain that?
So basically, this is the idea that the more time that your money has in the market, the more the process of your returns generating their own returns has to play out. And so let's say you invest $100 once and you leave it untouched and it's earning, say, 10% a year. So after year one, that $100 becomes $110.
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Chapter 4: Why is it difficult to time the market effectively?
And so it's about being able to zoom out. If you're on your little share app or, you know, if you're on even just searching a stock online, you kind of zoom out to a wider view and then you can see a more consistent growth trajectory. And that has to start somewhere.
And so this whole principle of time in the market versus timing the market is the ability to, you know, be it a pandemic or global tensions or new tariffs from a US president, whatever disruptions in the market could arise, you know that you can kind of ride it out.
Okay, I want to get to how people who might want to get started can get started. But first, here is a quick message from today's sponsor.
Okay, quick pause. Right now, CommSec Pocket is offering $0 brokerage on all eligible trades for a limited time. You can start investing with as little as $50 through the CommBank app or CommSec Pocket app. Check the link in the show notes for full offer details and T's and C's, which you should consider before deciding. Investing carries risk.
Okay, so let's say that someone is listening to this and they are wanting to invest in the share market but as we all know we're in a cost of living crisis and people might not have that disposable income to invest into the share market. What do you think is the best strategy there?
Yeah, I mean most of us don't have this kind of big treasure chest of savings waiting in the wings and you're listening to this podcast and going, okay, great, now I kind of know what I'm going to do with that. And so there's this other idea about dollar cost averaging.
And that's worth knowing about because it takes the pressure off you having to make one investment and then watching it kind of grow for the rest. It reframes that problem. So instead of finding the perfect moment, you invest a fixed amount at regular intervals. So let's say $200 a month. And you do that regardless of what the market is doing.
So even if there's a really bad month in September and your date in your diary for the $200 addition to your stock portfolio comes around, you still do it. And the whole idea there is that when prices are really low, that fixed amount of money buys more stocks. And when prices are really high, it buys fewer stocks. But again, over time, you see the peaks and troughs smooth out.
And so you're not kind of playing this game with yourself of trying to be brave in some moments and trying to be scared in some moments. You're just following a schedule. And so the decision is kind of made in advance for you. And I really think that's the value to dollar cost averaging is every time the news gets scary, every time the news gets positive, it actually doesn't matter.
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