Suze School: The Benefits of Value Cost Averaging

Summary

Summary of "Suze School: The Benefits of Value Cost Averaging"

Podcast Information

• Title: Suze Orman's Women & Money (And Everyone Smart Enough To Listen)
• Host/Author: Suze Orman Media
• Episode: Suze School: The Benefits of Value Cost Averaging
• Release Date: February 9, 2025

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Introduction to the Episode

In this engaging episode of "Women & Money," Suze Orman delves into the intricacies of investment strategies, focusing particularly on Value Cost Averaging (VCA). Together with her co-host KT, Suze navigates listeners through various investment methodologies, providing clear explanations, practical examples, and insightful conclusions to empower her audience in making informed financial decisions.

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Suze School: Understanding Investment Strategies

Suze opens the episode by celebrating Super Bowl Sunday, infusing a personal and relatable touch into the discussion. However, she swiftly transitions to the core subject of the episode: investment strategies, specifically VCA.

Key Investment Strategies Discussed:

1. Lump Sum Investing
2. Dollar Cost Averaging (DCA)
3. Value Cost Averaging (VCA)

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Detailed Breakdown of Investment Strategies with Examples

Suze employs a practical example to illustrate the differences between these three investment strategies over a 12-month period with a hypothetical investment of $12,000.

1. Lump Sum Investing

   • Definition: Investing the entire amount at once.
   • Example: Investing $12,000 when the stock price is $120/share results in purchasing 100 shares.
   • Outcome: After one year, if the stock price remains steady at $120/share, the investment remains at $12,000.

   Notable Quote:

   Suze Orman [00:06:38]: "So at the end, it's at $120 a share again. That means that one year later, you have 100 shares still. It's still only worth $12,000."

2. Dollar Cost Averaging (DCA)

   • Definition: Investing a fixed dollar amount regularly, regardless of the stock price.
   • Example: Investing $1,000 each month.
     • Fluctuations:
       • Month 1: $120/share → 8.33 shares
       • Month 2: $110/share → 9.09 shares
       • Month 3: $100/share → 10 shares
       • Months 4-12: Stock fluctuates, leading to varying share purchases.
   • Outcome: Accumulation of approximately 103.86 shares, totaling $12,463 at year-end.

   Notable Quote:

   Suze Orman [00:09:52]: "Month five, it's now going back up again to $100 a share. You're able to buy 10 shares."

3. Value Cost Averaging (VCA)

   • Definition: Adjusting the investment amount based on the portfolio's performance to meet a predetermined growth trajectory.
   • Example:
     • Target: $1,000 increase per month.
     • Adjustments: If the portfolio underperforms (e.g., stock price drops), invest more to meet the target; if it outperforms, invest less.
     • Outcome: Accumulation of approximately 108.31 shares, totaling $12,997 at year-end.

   Notable Quote:

   Suze Orman [00:19:02]: "With value cost averaging, you're getting more value for your dollars because when the stock goes up, you buy less. When the stock goes down, you actually buy more."

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Comparative Analysis and Benefits of Value Cost Averaging

Suze emphasizes that while Lump Sum Investing is straightforward, it doesn’t leverage market fluctuations to optimize returns. Dollar Cost Averaging, while better, doesn’t fully capitalize on market volatility either.

Advantages of Value Cost Averaging Over DCA:

• Higher Returns: In the provided example, VCA yielded $500 more than DCA.
• Flexibility: Adjusts investment amounts based on portfolio performance, optimizing stock purchases.
• Strategic Investment: Encourages disciplined investing while responding dynamically to market changes.

Notable Quote:

Suze Orman [00:20:49]: "So Keith Fitzgerald was 100% correct that the way one should invest when value cost averaging, cost averaging over dollar cost averaging, it will yield you more."

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Interactive Segment and Listener Engagement

Throughout the episode, KT interjects with humor and questions, enhancing the conversational tone and making complex financial concepts more accessible. For instance, during the VCA explanation, KT seeks clarification, prompting Suze to elaborate further, ensuring listeners fully grasp the methodology.

Notable Interaction:

KT [00:17:13]: "Here's my question. Suppose, because I'm following you, until I get to month three...what if I'm in month eight and I run out of money?"

Suze Orman [00:17:56]: "No, you have $12,000 to begin with to spend. You have it. It's sitting in a money market account."

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Conclusion and Key Takeaways

Suze concludes the episode by reiterating the superiority of Value Cost Averaging over traditional investment strategies. She encourages listeners to adopt VCA to maximize their investment returns and build a more robust financial foundation.

Final Takeaway:

• Value Cost Averaging is a more effective investment strategy that adapts to market conditions, ensuring better returns compared to Lump Sum Investing and Dollar Cost Averaging.

Notable Quote:

Suze Orman [00:22:08]: "All right, so everybody, there's only one thing that I want you to remember when it comes to your money and it's this value cost averaging is better than dollar cost averaging. That's all I want you to know."

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Additional Insights and Community Engagement

Beyond investment strategies, Suze touches upon her latest book release, highlighting her commitment to providing comprehensive financial guidance. She also fosters a sense of community by encouraging listeners to join discussions and share experiences, further solidifying the podcast's mission to empower individuals financially.

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Final Thoughts

"Suze School: The Benefits of Value Cost Averaging" is a testament to Suze Orman's dedication to demystifying financial concepts and providing actionable advice. By breaking down complex strategies into understandable segments and offering practical examples, Suze equips her audience with the knowledge to make informed investment decisions, ultimately leading to greater financial security and prosperity.

Transcript

[Suze Orman]

Hi, everybody. Suzio here. Now, what is the goal of money? The goal of money is for you to be secure. And there is no better way for you to be secure than having an emergency savings account. It is essential for your financial foundation. So all of you should be participating in the ultimate opportunity savings account at Alliant Credit Union. Go to myalliant.com to find out more. And be secure.

[Unknown]

We are strong we are wise we will not apologize we are here we will thrive Together we will rise we're the little bit of faith and everything it takes we are strong we are wise Together we will rise we will.

[Suze Orman]

February 9, 2025 welcome, everybody to the Women and Money podcast and everybody smart enough to listen. Today is Super Bowl Sunday and Susie school with kt. Kt. It's Super Bowl. How long?

[KT]

Wait, who's going to win?

[Suze Orman]

Wait, how long have Kolo and I waited for this day?

[KT]

They was his last Super Bowl. They both love football so much and it's like Kolo's number two sport. His number one is really soccer, you know, which is European football. But he loves this with Susie more than life itself. And they both laugh because I'm a very newcomer to the sport of American football.

[Suze Orman]

Yeah. 20 some odd years. KT, you have to get that you have been watching football Super Bowls with me for over 20 years. So don't go blaming it on that. You're a newcomer when it's 20 years old.

[KT]

I still am a newcomer.

[Suze Orman]

No, you're somebody who just like with a Roth ira, you refuse to get it.

[KT]

No, it's not true.

[Suze Orman]

What isn't true?

[KT]

I never grew up with football ever.

[Suze Orman]

What?

[KT]

So you're the only person that I.

[Suze Orman]

Ever experienced football with for 20 some odd years now. 24 years.

[KT]

So 20 Super Bowls, that's not a big deal. Okay, let's continue. Chiefs are gonna win, everybody.

[Suze Orman]

So did you all like my little Suzy thing that I put out yesterday? Everybody. You know that little character, her little emoji, My emoji. Do you like it?

[KT]

Your football emoji?

[Suze Orman]

I love it. That was so sweet. Oh, my God. I loved it.

[KT]

Anyway, she tried to do one of me, but it didn't work.

[Suze Orman]

And everybody. Do you know why it didn't work?

[KT]

I didn't like the way my hair looked.

[Suze Orman]

Yeah. On an emoji. Can you imagine?

[KT]

I said, susie, that looks like my face, but my hair doesn't look like that. She had this funny, like hairstyle and it was gray. I said, I have white hair. I have silver white hair. I Don't have gray hair. It never went gray. It just went.

[Suze Orman]

Can you believe this, everybody? This is from an emoji. Wait, Katie, tell them about the little ad we did the other day for the.

[KT]

Oh, my God.

[Suze Orman]

So, everybody, the ultimate retirement guide for 50 plus is finally coming out in paperback on February 18th. So Barnes and Noble, they all requested. Would I just do a little blurb on it? You know, just tell everybody about. So tell them what I did.

[KT]

Kt, she's in bed. She just woke up and she said, kt, can you take a video of me? And I said, doing what? And she had on her bathrobe and she said, just take a bit. Just put the camera on. So I turned it on and she did this whole 30 second commercial in bed in her pajamas with her book and it's her robe. It's hysterical. She does you wear a night shirt?

[Suze Orman]

Not often you wear a night shirt.

[KT]

You love your night shirt. I know you love it. All right, so wait, let's go back to the Chiefs versus the Eagles. Yes, I want the Chiefs to win because I want to see history take place. Repeat.

[Suze Orman]

It would be a three, Pete. That's what it's called. Three times he's done it.

[KT]

Three peat instead of it sounds like a repeat, but no one's done this three.

[Suze Orman]

Three times.

[KT]

Three consecutives.

[Suze Orman]

Yes, three consecutives called repeat. Pat Riley owns the trademark on that word, by the way.

[KT]

Does he?

[Suze Orman]

I think so. One day you'll have to tell when Pat Riley called, but that's besides the point.

[KT]

I didn't know who that guy was either. Anyway, so Super Bowl Sunday today, I can't wait. And my biggest excitement is I get to watch the commercials, which is what I love around Super Bowl.

[Suze Orman]

Okay, Today is Susie's school. However, kt, and this is where I think it's important that people know the difference truly, dollar wise, between three different ways to invest. One is lump sum investing. One is dollar cost averaging, which I've been talking about for years. And the third is value cost averaging. Now you need to listen to me here for just one second. For a long time, Keith Fitzgerald has been saying to me, susie, a better way to invest rather than dollar cost averaging is he calls it its little sister, which is value cost averaging. And he tried to explain it to me and everything like that, and I never really got it. So the other day I sat down and I finally figured it out. Out big time. And I have to tell you, out of all the ways to invest, I think that is probably the best way in Certain circumstances. So are you ready to get out your Susie notebooks? You need to write this down for this Suzy school and kt your job today. So we're going to be hearing from her. A lot is. If you don't understand what I just said, say something.

[KT]

Okay, you just did an LDV, baby. Lump$ value.

[Suze Orman]

All right, so are we all ready? Everybody, we're going to pretend that you have $12,000 to invest, period, for one year. That's what you have. Most of you do what's called lump sum investing, where you take all $12,000 in one lump sum KT and you invest it. So let's just say there's a stock out there that's at about $120 per share, which, by the way, I have no doubt Palantir will be at shortly. But that's besides the point anyway, that you have a stock that you want to buy and today it's worth $120 a share. When you decide to invest all $12,000, that means that you will be able to purchase how many shares? KT100 shares, period. Now, let's just say one year later, everybody, during that year, the stock went up, the stock went down, but one year later, it's at $120 a share again. That means that one year later, you have 100 shares still. It's still only worth $12,000. Did you all understand that? Did you get that? KT yeah, because it's possible, like you have a stock that did that. You bought a stock on your own. Do you remember this? And you bought it and it went down, down, down, down, down, down. And now it came up and it's back exactly what I bought at. What you bought it at. So let's just say that's true here, all right? That's known as lump sum investing, dollar cost averaging. So rather than investing all at once, you are going to invest $1,000 per month over 12 months. But over those 12 months, everybody, the price of that stock that started at $120 a share is going to fluctuate. Okay? Month one, at $120 a share, you're investing $1,000. You're able to buy 8.33 shares. Okay? So you would just divide $1,000 by 120 month two. However, the stock is at $110 a share. Again, you're going to do a fixed dollar amount of $1,000. So now you're going to be able to buy 9.09 shares. Price has gone down you get to therefore buy more shares. Month three, now the price is at $100 a share. You are investing a fixed thousand dollars and therefore you're going to be able to buy 10 shares. You following me, KT?

[KT]

Yeah.

[Suze Orman]

Month four skyrockets, it's at $90 a share.

[KT]

Still going down.

[Suze Orman]

Still going down. And at $1,000 fixed amount, you're able to buy 11.11 shares. You should be writing this all down, everybody. Month five, it's now going back up again to $100 a share. You're able to buy 10 shares. But months six through 12, these seven months here, let's just say the stock stabilizes at $120 a share. And every month you put in $1,000 for seven months, you're able to buy 8.33 shares. And then at the end it's at $120 a share. Okay? Now over those 12 months, you were able to accumulate 103.86 shares. If the stock is at $120 a share at the end, just like in our first example, it would be worth now $12,460. $463 more KT than lump sum investing in this example. Are you following me so far?

[KT]

I can't wait to get to vca.

[Suze Orman]

Right? I'm surprised you're not saying. Suze, you have to put an example of this on your podcast.

[KT]

Okay. I mean, it's pretty clear so far. Anyone that's ever listened to you really knows this part. Get to the third one. This is the, this is the big.

[Suze Orman]

This is the new, all right, value cost averaging. You still have $12,000 that you want to invest. Month one, the stock is 120, just like in the other examples.

[KT]

And I spend $1,000 that month and I get 8.33 shares.

[Suze Orman]

Oh, there you go. Good. Now, rather than fixed amounts of $1,000 every month that you are going to invest, you're going to set a target goal as if you put in $1,000 a month. Listen closely now. So in month two, your target is your portfolio value, not what you put in, but the value of your portfolio should be worth $2,000. So listen closely. Month two, the stock drops to $100. You have from the very first month, 8.33 shares. So at this point, before you invest, your portfolio is worth $833. Your target is for that portfolio to be worth $2,000. So to reach that $2,000,000 target, you are going to need to invest $1,166.67 to bring it up to $2,000. But that means you're going to be buying 11.67 shares. Did you understand that?

[KT]

Mm.

[Suze Orman]

Really?

[KT]

I did.

[Suze Orman]

All right, so now you have 20 shares.

[KT]

Okay.

[Suze Orman]

All right, month three, the stock drops to $90 again. You have 20 shares. So now your portfolio is worth $1800, but your target value is $3000. So now this month, you have to invest $1200. So it's worth 3000 of a portfolio value, which means you have to buy 13.33 shares. Now you have a total of 33.33 shares. Month four, the stock rises to $100. So it would be 33.33 shares times 100. Your portfolio value now is $3333.33. But to reach that $4,000 portfolio value, your target value, as if you had invested $1,000 a month, you now need to invest $667. Do you get where I get that amount from? It's the 3333.

[KT]

The difference between that and 4000.

[Suze Orman]

Yeah. All right, so that's $667. So now you are going to have to buy 6.67 shares for a total of 40 shares. 40 shares at $100 a share is $4,000. One more is in month five. You want $5,000 in that portfolio value. The stock remains at $100. So now you have to invest $1,000, buying 10 more shares, so it's worth $5,000. Because remember, KT, in month four, you have 40 shares. So starting in month five, 40 shares times 100 is $4,000. So therefore, you have to invest $1, Thousand to keep your portfolio value at $5,000, which means you buy another 10 shares, since it's at $100 a share. All right, now, let's just say month six through 12. Once again, the stock has risen KT to $120, just like it was at the beginning. So to keep your portfolio value at $1,000 a month, you are therefore just investing $1,000 every month and only buying 8.33 shares a month. At the end of all those 12 months, you will have had 108.31 shares worth $12,997 at the final price of $120. Are you all following me? Everybody, are you following me?

[KT]

I'm following you, but I have a big question. Keep going.

[Suze Orman]

All right, so by a lump sum, the end of the year you have twelve thousand dollar cost averaging. At the end of the year, you have 12,463. At the end of the year, with value cost averaging, you have $12,997. What's your question?

[KT]

Here's my question. Suppose, because I'm following you, until I get to month three, where the price went to $90 a share. So with my thousand dollars, I have 13.33 shares. And my question is not with your thousand dollars. No, no, no, no, no, no. Wait, wait, wait. Sorry. I had to. In order to have the value of the portfolio reach, let's say 5,000.

[Suze Orman]

No, 3,000. Cause it's month three.

[KT]

All right, so month three. All right, here's what I want to say. What if I'm in month, like eight, and I run out of money?

[Suze Orman]

No, you have $12,000 to begin with to spend. You have it. It's sitting in a money market account. There is no way you can run out of money because the more the stock rises. Why are you laughing? Why are you laughing? I just did a great explanation.

[KT]

Are you sure you want me to come to this class? Because I'm sitting here thinking, all right, I get month one, two, three, and even month four. Now all of a sudden I go to month five, and I'm still ahead of the game, but then I'm at six till the end of the year and it's back at 120.

[Suze Orman]

Yeah.

[KT]

So I'm wondering why. Why did I have to figure out all of this when I probably could? A dollar cost average, I would have made 300 or $400 less.

[Suze Orman]

So you're saying why not just dollar cost average? It's a lot of work. Maybe we need to automate it. But it's not that much work. It sounds like a lot.

[KT]

Well, you have to pay attention every single month.

[Suze Orman]

When you go to actually invest kt, all you have to do is remember what your target value goal is, which is.

[KT]

I set that myself. Right.

[Suze Orman]

Well, Obviously, if it's $12,000 divided by 12, it's 1,000amonth. So, you know, by the third month, you need to have $3,000 of portfolio value. That's why it's value cost averaging. Value in that account with dollar cost averaging, you want to just invest $1,000.

[KT]

A month and see what it buys.

[Suze Orman]

Right.

[KT]

Done.

[Suze Orman]

With value cost averaging, you're getting more value for your dollars because when the stock goes up, you buy less. When the stock goes down, you actually buy more. And in the long run, you make more money. So all you have to do, everybody, if you're going to do this, which I suggest you try doing, it is just look at how many shares you own, what those shares are worth, what your portfolio is worth that month. If it's the third month, the portfolio needs to be worth $3,000. If you're doing 1,000amonth, so to speak, value, and you just top it up in terms of how many shares, how much do you need to invest dollar wise to make the portfolio worth $3,000 and what will the dollars that you need to top it up with? Buy in shares?

[KT]

So Susie, out of these three, your favorite now is value cost averaging.

[Suze Orman]

Yes. So Keith Fitzgerald was 100% correct that the way one should invest when value cost averaging, cost averaging over dollar cost averaging, it will yield you more. Again, in this example, it was almost $1,000 more KT than lump sum and it was $500 more approximately than dollar cost averaging. And so that should. Hopefully numbers don't lie.

[KT]

So wait, let's go back to super bowl, everybody. Where we begin.

[Suze Orman]

I just want Kansas City.

[KT]

We're going to do a lump sum win with Kansas City Chiefs, baby.

[Suze Orman]

All right, darling. So go Kansas City. Go Kansas City. Go Kansas City.

[KT]

Patrick, Susie's watching you.

[Suze Orman]

I got news, everybody. If he wins this super bowl, he's going to be the very first $1 billion man in terms of a contract.

[KT]

Is that right?

[Suze Orman]

In my opinion, without a shadow of a doubt.

[KT]

Oh, my God. The goat. The rich goat.

[Suze Orman]

He then will be the goat over Tom Brady. In terms of Tom never won three in a row.

[KT]

No one won three consecutive games.

[Suze Orman]

This is the first time.

[KT]

So everybody, let's make history tonight.

[Suze Orman]

All right? So everybody, there's only one thing that I want you to remember when it comes to your money and it's this value cost averaging is better than dollar cost averaging. That's all I want you to know. All right, Go Kansas City. Bye bye.

[Unknown]

We are strong, we are wise we will not apologize we are here we will thrive Together we will rise we're the little bit of faith and everything it takes we are strong, we are wise Together we will rise.

[Suze Orman]

Hi, everybody. Suzie O here. Now, if you are looking for a way to start saving to get the most out of your money, I want you to go to myalliant.com, that's M Y A L L I A N T.com and look into opening an ultimate opportunity saving account. Put in at least a hundred dollars a month, every single month for 12 consecutive months, earn 3.10% interest on your money right now and get $100 at the end. Are you kidding me? It's the best deal out there. Start saving right now.

[Unknown]

Neither Susie Orman Media nor Susie Orman is acting as a Certified Financial Planner Advisor, a Certified Financial Analyst, an economist, cpa, accountant or lawyer. Neither Suze Orman Media nor Susie Orman make any recommendations as to any specific securities or investments. All content contained in this podcast is for informational and general purposes only and does not constitute financial accounting or legal advice. You should consult your own tax, legal and financial advisors regarding your particular situation. Neither Suze Orman Media nor Susie Orman accepts any responsibility for any losses which may arise from accessing or reliance on information in this podcast and to the fullest extent permitted by law, we exclude all liability for loss damages, direct or indirect, arising from the use of this information. The must have documents discussed in this podcast are legal documents created by a lawyer and distributed by Hay House.