Is really not as important as to how you invest in the stock market. And how you invest in the stock market should take into consideration what goals you are setting for that stock market investment. For example, are you investing for capital appreciation or for income through dividend paying stocks? Or is the investment in the stock market for the combination of both capital appreciation and dividend income? Are you investing through a Mutual fund(s) or selecting your own individual stocks?
Do you invest with a lump-sum dollar amount or dollar-cost average into your stock or Mutual fund positions (buying the same stock or Mutual fund at different prices over the years)? Is your investment dollar spread too thin and are all of those dollars working for your ROI (return on investment)? Do you pay commission fees to purchase a stock?
Do you pay load fees in your Mutual fund(s)? How much does your Mutual fund(s) charge you for management, operating and marketing fees (they are called ‘hidden fees’)?
‘How’ you invest in the stock market is more important than ‘when’ you invest in the stock market and ‘how’ you invest will determine your ROI.
When you invest in the stock market is after you devise a how-to plan that takes into consideration all of the factors above. Quite frankly, every cent of your investor dollar should benefit you and your family and no one else.
Below is an example of two types of investors that have $10,000 to invest in the stock market. One is a lump-sum investor, the other a dollar-cost averaging investor. One investor doesn’t care about dividends, the dollar-cost averaging investor does.
Each investor took a different ‘HOW’ to invest and both investors had the same ‘WHEN’ when they invested. Let’s say they invested at the same time, each stock purchased at $50 dollars a share and every quarter the stock dropped $2.00 a share, till the stocks hit a bottom of $36.00, and then recovers back to $50.00. The lump-sum investor bought the fictitious company ABC, which does not pay a dividend, and the dollar-cost averaging investor purchased the fictitious company XYZ, which pays a quarterly dividend of 50 cents a share (a 4.0% yearly dividend yield), and the company had a history of raising their dividend every March for the past 41 consecutive years. Both purchases were made in January.
The lump sum investor bought 200 shares of ABC at $50.00 a share, watched the stock drop to $36.00, then recover back to $50.00 and when all was said and done ended up right where he started with 200 shares of ABC worth $10,000.
The dollar-cost averaging investor purchased 100 shares of XYZ in January for $5,000.00, (the stock paying a quarterly 50 cent a share dividend for a 4.0 percent yearly dividend yield), and purchased $1,000.00 worth of more shares every quarter for the next 5 quarters. Each quarter the dividend from the company was also reinvested into more shares of stock. Each March the company raised its dividend 2 cents a share, marking 45 consecutive years of rising dividends. All purchases were commission free.
January, 100 shares of XYZ @ 50.00 a share = $5,000
Additional (5) $1,000 purchases each quarter, and dividend reinvestments shown below: Stock Price:
March $48.00, Div @ .52=1.083 shares, $1,000=20.83 shs.
June $46.00, Div @ .52=1.378 shares, $1,000=21.74 shs.
Sept:$44.00, Div @ .52=1.714 shares, $1,000=22.72 shs.
Dec $42.00 Div @ .52=2.098 shares, $1,000=23.81 shs.
March$40.00 Div @ .54=2.637 shares, $1,000=25.00 shs.
June $38.00 Div @ .54 = 3.169 shares. -0-
Sept $36.00, Div @ .54 = 3.393 shares. -0-
Dec. $38.00, Div @ .54 = 3.262 shares. -0-
Mar. $40.00, Div @ .56 = 3.260 shares. -0-
June $42.00, Div @ .56 = 3.149 shares. -0-
Sept $44.00, Div @ .56 = 3.045 shares. -0-
Dec. $48.00, Div @ .56 = 2.827 shares. -0-
Mar. $50.00, Div @ .58 = 2.843 shares. -0-
The dollar-cost averaging investor now owns 247.953 shares of XYZ. The value at $50.00 a share = $12,397.65. So, the lump-sum investor ends up right where he started, 200 shares of ABC worth $10,000, and the dollar-cost averaging investor ends up owning 247.953 shares of XYZ worth $12,397.65, along with the dividend income generated from owning those shares. Both had the same ‘when’ when they invested.
The dividend yield at 58 cents a quarter (.58 divided by $50.00 x 4 x 100 =), a 4.64% yearly dividend yield. Every quarter every dividend received from the company was higher than the previous dividend, no matter what the stock price was at the end of the quarter. The dollar-cost averaging investor is receiving a dividend for the next quarter from XYZ (no matter what the stock price happens to be) of .58 X 247.953 shares = $143.81, and the next quarter (and every quarter thereafter) the dividend would be even higher if the company, at least, maintained their dividend.
If XYZ repeated the same performance history ($50.00 down to $36.00, back up to $50.00) for the next 3 years, and ABC did the same- the HOW you invest in the stock market makes all the difference in the world.
To read the PREFACE from the book ‘The Stockopoly Plan – Investing for Retirement’ visit: http://www.thestockopolyplan.com
Charles M. O’Melia is an individual investor with almost 40 years of experience and passion for the stock market. The author of the book The Stockopoly Plan – Investing for Retirement; published by American-Book Publishing. The book can be purchased at: http://www.pdbookstore.com/comfiles/pages/CharlesMOMelia.shtml
