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Here’s a 1957 cartoon about the virtues of stock market investing from the New York Stock Exchange (NYSE). Fred Finchley is a family man with a good job, a lovely wife, two rambunctious children, and all the conveniences of modern life. What he doesn’t have, however, is enough money to pay for his dream vacation.
When Finchley’s boss gives him a raise of $60 a month, he faces a dilemma. Should he use the money for savings? For a couple of nights on the town with his wife every month? The NYSE suggests that Finchley put his money to work in the stock market with a “monthly investment plan”.
“Working Dollars” does a good job of explaining how dollar cost averaging works. The cartoon makes a case for small, regular investments. Investing isn’t just for tycoons — using a monthly investment plan, even the average family can begin to acquire wealth.
I like this film not for its discussion of investing, but for its encouragement to avoid lifestyle inflation. Have you ever noticed that no matter how much the average person makes, her spending tends to match her income? If Sally gets a raise, her spending rises to compensate. For most people, this lifestyle inflation lasts for decades, and it prevents them from getting ahead.
If, however, Sally exercises self-discipline and refrains from increased spending, the extra money from a raise (or from a windfall) can be put into savings. Or invested. If she’s willing to maintain her standard of living, the surplus dollars can be put to work to generate even more money. By avoiding lifestyle inflation now, Sally is improving her lifestyle in the years to come.
This article is about Funny Money, Investing Saturday, 2nd June 2007 (by J.D. Roth)
June 2nd, 2007 at 12:59 pm
I think that’s the main thing most people miss out on. That as they get rewarded for their hard work, they inevitably reward themselves and their lifestyle invariably moves upwards. People don’t realize how much better their retirements would be if they could just delay their gratification. On the other hand, living a good life now, does seem pleasing.
June 2nd, 2007 at 2:36 pm
I generally agree with the premise of investing or saving money from raises, bonuses, or “windfall” money. But, I also think that its important to treat/reward oneself with a small % of such money.
I recently received a raise at work that increased my semi-monthly take home pay by $531 each pay check. My 10% of paycheck savings that goes to our emergency fund increased to match the raise. I’m also putting the bulk of the rest of that increase towards our debt repayment plan. But, we are also using 2 pay checks worth of the increase to pay for a very nice hotel when we visit California in the fall.
June 2nd, 2007 at 4:33 pm
Hey Sam,
That is a pretty good raise. I wish I got almost $13k year raise….Congratulations!
June 2nd, 2007 at 10:04 pm
[...] thanks to Get Rich Slowly for this one. Here’s a 1957 cartoon about the virtues of stock market investing from the New York [...]
June 3rd, 2007 at 2:23 am
Lifestyle inflation is something I try not to fall into. You can live a good life now without buying superficial things all the time. Like anything that makes you feel good, once you are on that road it’s difficult to get off it. I’ve seen a lot of people lose their jobs/take a dip in income and struggle to take the steps back financially to survive.
Organize IT
June 3rd, 2007 at 8:39 am
Remember book and board bookcases? My sister-in-law can’t understand why we still have them. She’s broke and incredibly in debt. We own our own cars, have no debt beyond the mortgages on our cash flowing rentals, and spend several time a year going on vacations. She drives a BMW that she still owes 15,000 on. We’re a twentieth century family and she just can’t understand us.
June 4th, 2007 at 4:13 pm
It’s not technically dollar cost averaging, unless you start with a lump sum.
June 4th, 2007 at 9:03 pm
GG
Huh? Did you even watch the video?
When the investment level remains relatively constant and the investment time intervals are regular, it’s DCA.
A lump sum plays no part in the equation.
When this video (film, actually) was produced, ‘index funds’ weren’t available. For current investors, DCA has gotten almost insanely easy. Just take a look at the track records for a dozen or so index funds that are still open to new investors (also, take a look at the track records of their management) and choose one. Much simpler than researching a couple thousand stocks and much cheaper than a subscription to IBD (Investors Business Daily).
Due diligence on your part should reveal a couple of good index fund possibilities. Choose one … or more … and make a beginning.
Their aren’t many circumstances where DCA won’t work … but here are two of them:
1) your chosen stock / fund tanks and -stays- down. Short of bankruptcy followed by dissolution, this is highly unlikely.
2) your life circumstances change and you NEED the money at an inopportune time. Congratulations, you are now in the same boat as about a zillion other ‘market timers’.
Like most other investment plans, if you begin investing before you realize you need to, you’ll be the bigger winner.
March 4th, 2008 at 4:42 am
Keep in mind, that 13K raise means MORE TAXES at the end of the year. I bet that put you into an entirely new tax bracket.
June 8th, 2009 at 6:01 pm
Lol, the guy trying to sell him stock tips says “Somali land”. Maybe that’s what they called it back then?