Dollar-Cost Angie: I'm Not Good with Money

by Jeff C. Johnson

“Angie,” a friend of a friend, called me for financial advice in the early 1980s, saying, “I’m not good with money” and could use some help.

I was a rookie stockbroker sitting at my desk “dialing for dollars” and trying to find new clients with money to invest. Frankly, I didn’t know all that much about financial planning. But I did know more than Angie and was glad to offer advice, even if she didn’t have enough money to be a client.

Angie had just gotten “a real job” after waitressing and other part-time jobs while completing her college degree. Her employer had just adopted a retirement savings plan, aka 401(k), and she had no idea how much to save and how to invest the money.

After some discussion, she decided to save a small amount each paycheck. She knew it would be deducted by the payroll department before she received her “take-home pay.” She said saving this way was a good idea because “I’m not good with money.” We also picked one stock mutual fund that was a plan investment option. It was an average fund with a recognizable name.

A few years later, she called me. I hadn’t spoken to her since our telephone call. She wanted to come to my office and show me her retirement savings plan statement. Something was wrong; the statement didn’t look right. We set a time for a quick meeting at my office.

When she arrived, I discovered, to her surprise and mine, that the value of the account was over $20,000. She said this was too much money and there must be a mistake! Angie had started saving a set amount and increased the amount each year when she got a pay raise. She hadn’t changed the original one stock mutual fund investment. It was worth a fair amount more than what she had invested over the five or so years since we first talked. The statement was correct.

Angie never became a client, and we didn’t stay in touch. But I heard from her recently, and she never saved any other money. She spent most of her earnings on clothes, purses, new cars, vacations, etc. But she always stayed in the retirement plan and never touched that money. It remained invested through the ups and downs of the last 40 years. She told me she didn’t pay much attention to the account because “I’m not good with money.”

The power of dollar-cost averaging (DCA) over the years is immense! This is what Angie was doing over four decades. By investing steadily through up and down markets, she was buying more shares during “down” markets and fewer shares when the stock market was strong. She was building her holdings at an attractive average price. It worked especially well for her because she let it work for her.

There is a disclaimer at the bottom of the page stating essentially that DCA is not a guarantee of success. You can lose money. However, if you want to do some stock market research, try to find a long investment period like 20 years, 30 years, or, best of all, 40 years that didn’t have amazing results, even with a less than stellar investment selection. It can’t be done.  

If you know a young person (maybe you) who is launching their career and establishing a financial foundation, they need to know this true story.

In spite of being less than frugal and making some personal and financial mistakes, Dollar-Cost Angie (as I think of her) is retiring with over $2 million dollars in her plan. She happily spent everything else and is planning to start collecting Social Security income (SSI) at a reduced level at age 62. I advised her to wait to file for SSI benefits later because the amount would be higher for life if she delayed until her full retirement age. She laughed and said she didn’t care; she wanted the extra check right now. She added, delaying is probably the right thing to do but “I’m not very good with money.”

The story above is for illustrative purposes only. Performance is historical and does not guarantee future results.