The pollsters had it wrong. Trump won. Maybe the monumental miscalculations we witnessed will lead you to reexamine conventional wisdom in general.
The conventional wisdom is that those who can find (and afford to pay) the most responsible, well-respected financial advisors can expect to have outstanding results. From our experience, that’s not true.
In fact, the small investor, acting on his or her own, has as good as or even a better chance to succeed. It’s been proven over the years.
Nevertheless, most people prefer to leave the responsibility for investing to professionals—even if 86% of those professionals don’t get results that are as good as the market in general (McGraw Hill Financial).
Why do we do that? The truth is that many people don’t want the responsibility for their own investing because they don’t think they know enough to be successful. Stock market investing involves a lot of uncertainty and people really don’t like uncertainty.
And as much as people don’t like uncertainty–the stock market likes it even less and generally reacts negatively. With a Trump White House in the offing, and the market trading at all time high levels does that mean that this is a good time to be sitting on the sidelines?
Probably not! Market volatility may provide a bumpy road and buying opportunities–but it will be difficult for even the most agile professionals to take advantage of them.
Especially in times like this, it’s important to keep a long-term outlook. There’s no way to know in which direction the market will move.
If you get out now, it may be difficult to get back in before the next raging bull market, while investors who stay in for the long term will find that the ups generally outweigh the downs.
Here’s an example: Suppose you had invested $1,000 at the beginning of May 2008. If your performance matched the overall market, you’d have lost $363 by the end of November 2008 and $447 by March 2009. Your $1,000 would be down to $553.
However, if you had held on, you’d have recouped your losses in three years and by the close of September 2016, it would be worth $1,847. If we take a longer-term view and suppose you invested that $1,000 at the start of 1973, you’d have lost 17.9% in 1973 and a further 20.7% in 1974. Your $1,000 would have been down to $614.
However, if you had held on, you’d have recouped your loss by July 1980 and by the end of 1986, it would have grown to $3,948. What would it be worth at the end of September 2016? That $1,000 investment would be worth a whopping $66,328!
So staying put in the market for the long term is generally a good idea. But if you are not already invested, might this be a bad time to jump in? In such uncertain times, you may wonder whether this is the time to take the plunge. The answer is, don’t take the plunge. Instead, go in slowly.
Such a strategy offers many advantages.
One way to go in slowly is by investing through a mutual fund. Better still, if you want to avoid management fees, consider investing through company-sponsored dividend reinvestment plans (DRIPs) where you can make small regular investments to build up holdings over a period of years—often without fees.
DRIPs also answer the question; how can you create a portfolio that will match the overall market?” That’s because you only need to own a single share of company stock to qualify to establish a DRIP account.
Therefore, for a small upfront investment, you can set up accounts in a widely diversified portfolio—without having to resort to a mutual fund.
In fact, because you can easily build up holding over time often without fees, investors can be assured that the cost of their shares will be even less than the average price the shares were selling for during the period they invested.
That’s because a dollar-cost-averaging strategy virtually “forces” you to buy more shares at market dips and fewer shares when stock prices are relatively high. Investors have the certainty that they will not be over paying for their shares.
You may wish to establish accounts in some of the companies whose products or services you know and enjoy. You can find out whether a company you know and like offers a DRIP by going to our Website, www.directinvesting.com.
If you intend to make very small regular investments, you may want to limit your choices to DRIPs that do not charge a fee for investing and dividend reinvesting. Click here to see a list of no-fee DRIPs.
Until Next Time,
Ms. Vita Nelson is one of the earliest proponents of Dividend Reinvestment Plans (DRIPs) and a knowledgeable authority on the operations of these plans. She provides financial information centered around DRIP investing. She is the Editor and Publisher of Moneypaper’s Guide to Direct Investment Plans, Chairman of the Board of Temper of the Times Investor Service, Inc. (a DRIP enrollment service), and co-manager of the MP 63 Fund (DRIPX).