Podcast Episode - Suze School: Clearing Up A Few Things

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On today’s episode, Suze goes over the importance of dollar cost averaging, what the difference is between interest and dividends, the Vanguard Total Stock Market fund, and more.

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Podcast Transcript:

00:00:34

Suze: August 14, 2022.

00:00:39

Suze: Welcome, everybody to Suze School here on the Women & Money podcast

00:00:44

Suze: as well as everyone else smart enough to listen. There's a few things that I just want to talk to you about before I go into Suze School today.

00:00:55

Suze: First

00:00:57

Suze: it was so sweet that Colo's birthday was August 11th

00:01:03

Suze: and on Colo's birthday

00:01:06

Suze: my sister-in-law, Lynn Stender, who is this incredible artist, painted for Colo on his birthday, a little picture of his dog Toby.

00:01:18

Suze: And I was videotaping it, and he opened the present. He looked at it and he started to cry. Well I thought that was so touching because the truth of the matter is, I just love one big strong men or anybody for that matter, they cry from their heart. Because their heart has been touched. And Colo really couldn't even talk. He was so moved,

00:01:44

Suze: and I thought I know I'm going to post that on my Women & Money app. Which hopefully all of you are participating in. You just download it by going to Apple Apps or Google Play, because I only post certain things there and nowhere else. And I thought all of you would enjoy seeing it.

00:02:06

Suze: And you did. A lot of people saw it.

00:02:10

Suze: But the problem was,

00:02:13

Suze: many of you thought that he was crying because his little doggie Toby had died.

00:02:20

Suze: And I just want to tell all of you Toby did not die. Toby is absolutely fine.

00:02:28

Suze: And the reason that Colo was crying, was because it reminded him of how much he misses Toby. He loves Toby. Toby is like his son, even though he has three other kids. He loves Toby. And it reminded him of Annie, his wife and how much he missed them.

00:02:52

Suze: And he started to cry because he felt that, and he also felt so much love that Lynn had gone to the trouble of hand painting something for him. And that moves him, it moves him. How much we all love him as well. He can't really believe it.

00:03:15

Suze: He just can't believe it. He walks around everybody, and he says Suze, I'm the luckiest person in this entire world.

00:03:24

Suze: He said "I just can't even believe my life."

00:03:28

Suze: And that always comes out in tears.

00:03:31

Suze: So with that said, it was so sweet that so many of you wrote, and that many of you were moved because it reminded you of your little furry friend that you lost. But I just want you to know that Toby is safe and sound, living in Colombia with Annie, and that sooner than later here, in December, Colo will get to go home and spend quite a bit of time with them.

00:04:00

Suze: The next thing that I want to tell you about is, the podcast of July 31^st. Which was on Inherited IRAs. I did another podcast with KT on August 11th about this same topic. But I still got so many emails that you sent in to asksuzepodcast@gmail dot com, still totally confused.

00:04:29

Suze: So I went back and I listened to the July 31 podcast, and I have to tell you, I did not do the best of jobs on that podcast. I wasn't as clear as I really needed to be. So I went back and I edited that podcast, to hopefully make it really clear, so you're not confused about it. So I ask all of you if you're interested in this topic and all of you should be,

00:04:59

Suze: to go back and listen once again to the July 31st podcast as well as the August 11th one, and make sure you listen closely.

00:05:10

Suze: One more thing before Suze School. Now I know that a lot of you think that this market is going to go straight up. And I get that you think that because you're all writing me about it. I have said in the past, and I just want to repeat it one more time, that I have no doubt that this market is going to continue to go up for the next week, two weeks, three weeks or whatever it may be.

00:05:39

Suze: But I also have no doubt that comes sooner than later, it's going to hit a point where I do think it's going to come all the way back down again. Might not be until October.

00:05:52

Suze: But I do think that is going to happen.

00:05:56

Suze: So how do you deal with that? You deal with that by dollar cost averaging. You deal with that by not stopping investing, if you have 7, 10, 20, 30 years or longer until you need this money.

00:06:14

Suze: You just keep doing it month in and month out. Which is why I decided I wanted to do Suze School today on dollar cost averaging.

00:06:27

Suze: The difference between dividends and interest, and why I like the Vanguard Total Stock Market Index so much. And if there's time, why I like Devon, the energy stock so much.

00:06:43

Suze: So let's see if I can get into it very, very quickly. First, I just want you all to understand the difference between dividends and interest.

00:06:57

Suze: Interest is when you put money into a savings account, like the Ultimate Opportunity Savings account that I want all of you to be doing at myalliant.com, where you're putting money in every single month, maybe you're putting in that $100 every month that I want you to do, and not only will you get that $100 at the end of 12 months,

00:07:21

Suze: but they're paying you a 1.4% interest rate. Your value doesn't fluctuate based on what's happening in the stock market, you're getting interest on your money.

00:07:36

Suze: And it only fluctuates because it's going up because of the interest it's earning. It can never, ever go down.

00:07:46

Suze: So your balance when you're making interest, the balance can never ever go down. That's what interest happens to be. By the way, listen to the end of this podcast, and you'll hear everything that you need to know about The Ultimate Opportunity Savings account, and why you all should be doing it. Anyway,

00:08:09

Suze: Dividends.

00:08:11

Suze: Dividends are when you buy an exchange traded fund, maybe a no-load mutual fund, maybe you're buying an individual stock.

00:08:21

Suze: And some of the stocks within the exchange traded fund or mutual fund pay you income known as a dividend every quarter. Sometimes they do it every month, but let's say it's an individual stock.

00:08:37

Suze: And they have enough money that they want to return some of that money to the investors in that stock, and they return it to you in the form of a dividend.

00:08:51

Suze: Now they don't have to give you a dividend, but if they want to give you a dividend, they declare a dividend of a specific amount of money, and they usually pay that to you every single quarter. However, the value of that stock can go up, can go down, so your balance isn't safe, so to speak. Your original investment

00:09:17

Suze: isn't safe where it just stays with what you put in it, like when you put it in the Alliant credit union.

00:09:25

Suze: So that is a dividend versus interest.

00:09:30

Suze: Series I Bonds are paying you interest, Devon the energy stock is paying you a dividend. But Devon can go up and down in value, the dividend can go up or down, so everything can fluctuate there. Now interest can go up and down, but your balance can never go down if it's in a savings account.

00:09:58

Suze: Or an I Bond, or something like that. Next. So we know what I think about the stock market,

00:10:07

Suze: we know the dividends versus interest right now.

00:10:11

Suze: So why do I like dollar cost averaging?

00:10:16

Suze: Which means, you put a specific sum of money, every month, or every three months, or every six months. You choose the time frame. Into an investment that you want to make.

00:10:31

Suze: And you do that every month or every quarter or whatever, month in, month out, year in year out.

00:10:39

Suze: And when you are buying something, if the price of what you're buying has gone up your dollars, buy less shares, if the price of what you are buying goes down, your dollars, buy more shares. Just to give you a very simple example, is let's say you're buying something

00:11:02

Suze: at $10 a share, and you're buying $100 worth every single month. At $10 a share, you're able to buy 10 shares. Now all of a sudden it's gone up to what? $20 a share. So your $100 will only buy you five shares. But let's say it goes down to $5 a share, then your $100 buys you 20 shares.

00:11:33

Suze: So when the price goes down, you buy more shares, when the price goes up, you're able to buy less shares. But over time, you are averaging the cost of what you are buying with your dollars,

00:11:49

Suze: So that in the long run you take advantage of the fluctuation of the stock or the exchange traded fund or a mutual fund that you are buying. Just that simple. A lot of you think you should just put all your money in at once, known as lump sum investing.

00:12:09

Suze: And I just think that's dangerous in markets that go up, that go down, that go up then go down. I just think you're better off, especially if you don't have a lot of money, to dollar cost average into these markets.

00:12:26

Suze: And again, that's what many of you are doing within your 401k, 403b, TSP. Hopefully your Roth IRA, hopefully you're only investing in Roth retirement accounts.

00:12:39

Suze: However, that's essentially what you're doing month in and month out.

00:12:44

Suze: I want to give you an example. If you had dollar cost averaged into the Vanguard Total Stock Market ETF, which as many of you know is one of my favorite, if not all time favorite ETFs out there,

 00:13:02

Suze: and I'll tell you why that is in a few minutes. But if you had dollar cost averaged into it, starting in January of 2020,

00:13:13

Suze: where you would be right now.

00:13:17

Suze: Now in January 2020,

00:13:21

Suze: VTI was at $163 a share the first of the week there.

00:13:30

Suze: And if you had dollar cost averaged the first of the week every month from then until August 1^st, 2022,

00:13:40

Suze: you would have paid in January 163, in February you would have paid 150, in March you would have paid 129, in April 145, in May 153, in June 156, and on and on.

00:13:57

Suze: VTI as the months went on went up 222-233. It went up there.

00:14:06

Suze: And then it started to also go down, to where it went down as low as 188.

00:14:14

Suze: Now because you were dollar cost averaging that entire time,

00:14:18

Suze: as of August 1, 2022, when it was at 207 when you would have dollar cost averaged into it,

00:14:27

Suze: your average price would have been $196 a share.

00:14:34

Suze: But during all that time,

00:14:37

Suze: it also paid you a dividend, because remember exchange traded funds can also pay dividends. It paid you a dividend over all of those times accumulated of $5.70 a share.

00:14:54

Suze: So the truth of the matter, is that your true cost basis in VTI, as of today, is $190 a share.

00:15:06

Suze: And the price of VTI today, or actually on Friday, was $215 a share.

00:15:15

Suze: So from January 2020 till now, you're still up 14% on your money. 14% over 2.5 years now, that's not great. That averages about 5% a year the time you know since you've been in there, but it's still a positive return.

00:15:39

Suze: So it gave you diversification, it gave you a return, it will continue to go up, continue to go down, is paying you a nice dividend. And so, that's why I like dollar cost averaging. Because in markets that are crazy, maybe you don't make as much money as if you've just taken all of your money and invested it, but you're not gonna lose it either.

00:16:03

Suze: Because you know you could have gotten in when it was at $241 a share, now it's at $215, and you would be down considerably on your money.

00:16:15

Suze: So I like the diversification of it, I like dollar cost averaging, but still, why do I like VTI so much?

00:16:24

Suze: I want all of you to be seriously diversified.

00:16:29

Suze: But when these markets start to go up big, if you look at what goes up big it's usually the technology stocks, the growth stocks,

00:16:41

Suze: but you don't want all of your money just in technology, you want diversification.

00:16:47

Suze: But with VTI, their top 10 holdings, out of the thousands of stocks that they have in there, are Apple, Microsoft, Amazon, Alphabet which is Google, Tesla right. United Health, Johnson & Johnson, Berkshire Hatheway, Meta, which is Facebook. Things like that.

00:17:10

Suze: And those are the stocks that are skyrocketing right now.

00:17:14

Suze: And so I like that you get to participate in that, at the same time that you have incredible diversification . That's why I like it so much.

00:17:27

Suze: So it's really important that if you are invested in the stock market, that you have diversification. If you own individual stocks, you have to own at least 25 stocks, because you never want more than 4% of your money in one individual stock.

00:17:46

Suze: And so either you can do that, or buy an exchange traded fund like VTI,

00:17:53

Suze: Or even diversify more like buying ETFs that are made up of staple stocks only like XLP, which will absolutely stand up if we go into recession.

00:18:05

Suze: And things like that.

00:18:08

Suze: So I just want you to think about that for a second here.

00:18:14

Suze: Which brings me now to Devon.

00:18:17

Suze: You've been hearing me talk about Devon, symbol DVN, a lot lately. I started to talk about it way back when, but really I brought it up again two or three weeks ago. And I brought it up again, because it had fallen down to $56 a share.

00:18:37

Suze: And what an incredible price for that stock, it's an energy stock, to be at, vecause it was paid a really large dividend. And the lower a stock falls and when you buy it, the higher the dividend yield to you happens to be. Because you didn't pay as much for it. Remember, everybody gets the same dividend no matter what price you pay for that stock.

00:19:05

Suze: So I really wanted you to take advantage of it. Did I want you to put all of your money into Devon? No. Did I want you to remain diversified? Yes. But you can't be overly invested in energy stocks. That's not smart either. Because energy stocks like Devon can be hit. But I wanted it for the dividend.

00:19:31

Suze: And many of you wrote me and said oh you were buying it for growth, and I was like you should not be buying this, I wanted you to buy it for the dividend.

00:19:41

Suze: Now, is it possible that Devon can grow? Of course it is. I mean since we talked about it two weeks ago or whatever, it's up 17%.

00:19:53

Suze: But oil is very volatile right now. Truthfully, I think Devon will get through it. I think it easily can be a stock that's in its seventies. But it's not about the price of the stock, as much as the dividend. Now, the question has to be,

00:20:12

Suze: this dividend that they're going to pay shortly here, um of a $1.55, which comes out to be about $5.08 a year in dividends, is it secure?

00:20:27

Suze: They have tremendous free cash flow on their operations, even if we did some serious conservative calculations. Worst case scenario, the dividend goes down to 4.5 or 5%.

00:20:42

Suze: But I think it's going to stay here. But I think income is going to be very necessary for some people, especially in retirement. And I think Devon is a great way to do it. Now with that said, how would I own Devon? I would have VTI, the vanguard total stock market index ETF. I might have XLP, the staple stocks. That ETF.

00:21:10

Suze: And maybe I would have a very small amount of Devon. One might say, as you've asked me before, why not just continue to buy XLE . Which is the  ETF of energy, and gas, and things like that. I don't know... you can absolutely do that.

00:21:30

Suze: But there's a tremendous difference in the dividend between XLE

00:21:35

Suze: and Devon, even though I know XLE is giving you more diversification. I'm not asking you to buy a lot of Devon, I don't even care if you buy Devon truthfully. But again, I'm just being clear, once again because so many of you've been writing on why I like Devon.

00:21:57

Suze: at this point in time.

00:22:00

Suze: All right, so what did we do today? We cleared up Colo, we cleared up July 31st, we cleared up dividends versus interest. We cleared up dollar cost averaging and why I like it. We cleared up the ETF Vanguard Total Stock Market index ETF, Symbol VTI, and why I like that. We cleared up Devon.

00:22:26

Suze: And hopefully,

00:22:29

Suze: we're clear on everything at this moment in time. So until next Thursday, when Ms. Travis joins us, there's really only one thing that I want for all of you and your money, and it is this. For you to stay smart, strong, safe and secure. See you soon. Bye bye now.

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