As you well know, the stock market is cyclical. While nobody has a crystal ball to know where it will be in the future, the long-term value of stocks is predictably good if you’re a long-term value investor.
The current market price is only important when you actually sell. It doesn’t pay to try to out-guess the market. Even professionals don’t seem to be able to do that. What will pay is to develop a strategy you are comfortable with. Otherwise, you will respond to every market movement and inevitably, the response will be to sell low and buy high.
It has been my experience that the successful investors are the ones who haven’t changed their portfolios over the years, except for occasional rebalancing to achieve their desired asset allocation. It’s the younger, short-term oriented traders who either get out of the market or are forced out by margin call and quit.
One of the biggest risks of attempting to time the markets isn’t bear markets, but rather missing bull markets. An investor following a buy and hold strategy can expect to do quite well because the gains from being invested in all the bull markets more than outweigh the losses associated with holding investments through bear markets. if you need additional justification for having stayed put, every sale of stock represents a taxable event.
One of the Greatest Investment Bargains You’ll Find Anywhere
To give you another voice on the subject, I heard from financial writer, David Smyth, who is a subscriber and is enrolled in direct stock purchase plans. He writes “The DRIP is probably the greatest investment bargain you’ll ever find as a long-term investor—short of inheriting the money from a providential great-aunt.”
This is a fact I never fully realized until I started researching our book on cutting down on investment expenses. You know enough about unnecessary expenses to avoid a load mutual fund. But even so-called no-load funds are actually loaded with expenses that, in extreme cases, can amount to more than 4% a year.
These expenses include: administrative costs, investment advisory fees, commissions on purchases and sales, and, if your fund has a 12b-1 plan, it will even charge you for it’s own advertising and promotional expenses. The end result of all this accumulation of costs? The average mutual fund will be unable to keep up with the market averages, as you can verify by looking up mutual fund performances averages.
It appears that not much has changed. Indeed, there may in fact be some eternal truths for investors—the most important of which is to be prepared financially and emotionally to deal with market volatility. In a word, stay with the market in good times and bad. As a patient long-term investor, you will be amply rewarded.
Boring is Beautiful—and Can Pay You Year After Year!
Of course, this assumes you’re invested in value stocks to begin with—not throwing your hard-earned retirement money into speculative or poorly managed companies. While not as exciting to talk about at cocktail parties, “boring” value stocks, like AFLAC, Kellogg, Exxon Mobil, Raytheon, Foot Locker, Northrup Gumman and Abbott Labs, to name just a few No-Fee DRIPs pay dividends each year. In fact, most increase their dividends year after year.
What’s more, many of these stellar U.S. companies allow investors to buy shares directly—without paying broker commissions—through their company-sponsored DRIP. For years we’ve urged investors to enroll in dividend reinvestment plans (DRIPs) and to make periodic purchases through these plans, without a broker. You get the benefit of dollar-cost averaging to tilt the odds in your favor.
Bad times, then, turn out to be good times—good times to purchase that is. And if you are investing regularly, you won’t miss those good times. Check out these No-Fee DRIPS.
Vita Nelson is an acknowledged authority on the operations of company-sponsored direct investment plans (DRIPs). Ms. Nelson now provides financial information centered around DRIP investing.