Dollar-Cost Averaging On my Lunch Break

Well, Max OOP got paid again last Friday. Although I was tempted to blow out of work early and take everyone out for overpriced beers and lunch downtown at my favorite pub, I stayed the course.

If you haven’t caught the trend yet, Max OOP has been checking in on the Healthcare REIT Experiment every payday the last few months. Since I get paid over 26 pay-periods, this regular schedule works out to every two weeks. This review usually comes with a quick lesson on REITS followed by what has probably become a predictable addition to the Max Out of Pocket medical office building portfolio. I am hoping this portfolio will eventually generate some passive income to help fund this little blog project or pay down my future healthcare expenses. It may also lose money, but we will learn from it either way.

Well, spoiler alert. Max OOP added another 60 shares of Physician Realty Trust (DOC) at a price of $18.28 per share to the Healthcare REIT portfolio. This transaction occurred during my lunch break on June 7th. Pretty amazing that we live in a day and age where your Average Joe Max can use a cell phone to pick up some medical office buildings on a whim during a lunch break. This took the total position to $21,665.70 and increased my projected annual income from the investment to just over $1,100.

As I like to say, let the good times roll!

What a great segway into our next exciting subject, dollar-cost averaging.

Dollar-Cost Averaging

You might recall Max OOP whining about the price tag of Physicians Realty Trust (DOC) during my last REIT update. Paying $19.00 was almost $0.80 cents more than what I paid just a month prior. That questionable 50-share-purchase took an extra $35 out of my pocket compared to the same transaction a month prior. That’s a lot of lunch money. Does that make me a sucker? Not necessarily.

Dollar-cost averaging can help make sure I don’t pay too much all at once for a long term investment. It helps even out the cost basis over time. The cost basis is the original value you pay for the investment at the time of purchase. So the lunch break transaction that occurred on June 7th represents a cost basis of $1,103.

Dollar-cost averaging is a strategy where someone like me buys a similar amount of an investment on regular lunch break intervals. The purchase usually occurs regardless of the price of the investments. For Max OOP, the investment has been medical office buildings, my interval has been payday (every two weeks), and my purchase has been between 50 and 100 shares of DOC ($1,000 – $1,500). My lunch menu on the other hand? I usually go with a sandwich.

Dollar-Cost Averaging In Action

Since stocks can be volatile (go up and down), dollar-cost averaging your way into a long-term investment can help neutralize some of the natural price fluctuations we see in a stock. Since some of those fluctuations are driven by the overall stock market and have nothing to do with the individual stock, it can be risky to buy a whole bunch of medical office buildings all at once using a single stock. This is because you might be buying at the top and not even know it.

Here is a technical definition of dollar-cost averaging directly from Vanguard:

A method of investing that entails purchasing a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices rise. Using dollar-cost averaging, you can avoid the risk of investing a lump-sum amount when prices are at their peak.

Vanguard Glossary – Dollar Cost Averaging

Since my dollar amount has not been fixed, my investment intervals have not met the ‘technical definition’ of dollar-cost averaging. But the concept still applies. Since I have changed the amount of the investment depending on the share price, it could be inferred that there is a component of market timing in my short investment history with DOC (Physicians Realty Trust). Generally, trying to time the market is a bad strategy. That said, DOC isn’t the market; it is an individual stock. Still, probably not a good idea to try and time an individual stock either. Since I already broke a rule by picking an individual stock in the first place, why not break two rules? Max OOP has always been a bit of a rebel. Or, maybe he just gets bored at lunch time. Since everyone else is on their phone not conversing with the general public, I figured I would find something else to do.

Over the course of the Healthcare REIT experiment, my cost basis has ranged from $14.61 all the way up to $19.10. My total cost for the portfolio (including fees) has been $19,180.10. Since I have purchased 1,197 shares to date, that puts my average cost basis per share at $16.02.

$19,180.10 / 1,197 shares = $16.02 average cost per share

Here is an updated look at the portfolio as of 6/12/2019:


Dollar-cost averaging has added some additional expense to the process of building out the Max Out of Pocket Healthcare REIT portfolio (yes, we need a better name). My brokerage firm charges $4.95 per transaction, so it has cost me just over $55 to build this position up until this point. If I would have put $19,180.10 into this investment all at once in one lump sum, I would have saved about $50 since I would only have one $4.95 transaction fee.

Max OOP likes to joke that $55 is much cheaper than the 3-6% in transaction fees Mr. or Ms. Realtor Agent might charge during a traditional physical real estate transaction. Maybe someday I will be able to handle buying houses in-between sandwich bites during lunch for $4.95 per house. Until that app comes out, I will opt to rent.

$19,180.10 X 6% = $1,151 (ouch)

Dollar-Cost Averaging To Retirement

Most people, including Max OOP, are forced into a dollar-cost averaging strategy when saving for traditional retirement. This is mostly due to income and asset constraints. In other words, most of us don’t stumble into $100,000 and then suddenly have to decide if we are going to invest it in one lump sum or dollar-cost average it into the stock market over time. If you are maxing out your 401(k) or 403(b) over 26 pay periods in 2019, you are putting about $731 into the stock market every two weeks. Since you are putting a fixed amount ($731) into the stock market on a fixed interval (every two weeks) regardless of the share price, you technically meet the definition of dollar-cost averaging.

Since the total stock market tends to go up, I actually prefer to front-load everything into the stock market and get $12.00 pay checks, so I lose some of the price protection dollar-cost averaging provides. I also happen to know time in the market is more important than timing the market and it is statistically more effective to front-load, but more on that another time.

Where Do We Go From Here?

So will Max OOP put a formal dollar-cost averaging strategy in place for the Healthcare REIT experiment?

I’m actually not sure where this REIT experiment is going at this point. I had dreams of creating a money generating cash machine that would spit out rental dividends on a conveyor belt every quarter. I mean, how else am I going to trick people into learning about healthcare without attaching something like “passive healthcare income” to the story?

I also had thoughts that I would grow it to an even $25,000 and go into a monitoring phase. I would collect my passive income for the next 10 years and call it a decade. But then again, what would I do on my lunch breaks? If I were to continue to grow the investment beyond 25k, using a dollar-cost averaging strategy may help Max OOP put some boundaries and restrictions in place. This would theoretically take any emotions and thoughts that I could time this stock completely out of the equation and put everything on autopilot.

The Max Out of Pocket dollar-cost averaging statement might look something like this. “For the next 26 pay-periods, Max OOP will invest an even $2,500 each pay period into healthcare REITS regardless of market pricing.” It would also assume I continue to believe in the healthcare REIT thesis and investment for the long term. I would also probably need to include some diversification into other healthcare REITS at some point. Unfortunately, we are seeing additional tenant issues pop up with DOC, a risk I was well aware I was taking. LifeCare filed for Chapter 11 bankruptcy on May 6th and DOC happens to own three of their properties. Two are in Texas. Why can’t Texas keep its act together?

Final Thoughts

Before the birth of my Healthcare REIT portfolio and even the Max Out of Pocket website, I built the entire core Max Out of Pocket portfolio using a dollar-cost averaging strategy into the total stock market index. I happened to be investing during a ten plus year bull market and it put me well on the path to early retirement. Dumb luck? Maybe. But it also took a lot of time and effort learning to earn, cut expenses, and invest the difference. So far, we have just been taking concepts we already know and loosely applying them to the Healthcare REIT Experiment. At some point, it may make sense to tighten things up around here and get Max OOP back in line. But for now, this is still just a small part of the total Max Out of Pocket portfolio. I have said it once and I will say it again: Total Stock Market Index Fund investing is the core of my investment strategy, this healthcare REIT portfolio is just a side project during my lunch breaks.

Believe it or not, after all this dollar-cost averaging I was still able to sneak out early last Friday to start a four day trip to New Brunswick, Canada. A much more entertaining subject, but some days we have to stick with business. Sorry for the delayed post, we got back last night.

As usual, this is not a recommendation to buy this or any other stock and you are responsible for your own investing decisions.

Max Out of Pocket for the Healthcare REIT experiment so far = $54.45

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