Tuesday, January 8, 2013

Do You Have a Plan?

Do You Know the Future?

Another year has nearly passed us by, with all kinds of changes and shifts in global markets. That is certainly nothing new when it comes to investing. Going forward there looks to be more uncertainty to follow, much of which will hinge on the resolution to the Fiscal Cliff in Washington. Of course, it’s the surprise events that no one sees coming that take the biggest hit to investors. The Financial Crisis of 2008 and 2009 is an obvious example. This year the sudden slow-down in China hit oil and gas producers as well as other resource companies. On the other hand, American and European stocks have been soaring! Are we in a long run bull market, or are stock prices topped out and set to tumble? What is the global outlook for 2013? When will interest rates rise? The correct answer is, and the only one that should come immediately to mind is, “I don’t know” or “who knows?”

Do You Have a Plan for 2013?

With nothing but uncertainty to follow, I believe the most important investment strategy you can have is simply to have one, and stick with it! If you don’t have a plan, then you don’t have a foundation to build upon. You will be reacting to market events and fluctuations in stock prices. You’ll be jumping from one flavour of the month to another, selling in panic moments when stocks tumble, and buying stocks which have already risen. That’s simply not the way to build wealth.  If you are still holding actively managed mutual funds, and you don’t feel comfortable going the dividend route, then consider low cost index funds and ETFs. If your consumer debts are for the most part paid off, then start investing now. It is never too late to start!

In the end, it really doesn’t matter which strategy you choose. It really doesn’t matter if index investing, or buying dividend stocks resonates with you are not. You’ll see a lot of us bloggers and finance writers debating that point to infinity. What matters is focusing your resources on one single well-proven strategy, and following it through thick and thin. If you are index investing, that means rebalancing you portfolio, and not trying to second guess the market. If you’re a dividend investor, that means holding your positions and accumulating your dividends regardless of share prices.

Doing Nothing is a Plan

While it sounds simple, sometimes doing nothing is the hardest thing for investors to do. This month I’ve seen almost all my dividend positions soaring with double-digit returns, and stock prices rising sharply. While it’s been tempting to sell and take profits, and reap thousands of dollars, I haven’t. In the long run, I believe holding my positions and continuing to accumulate and reinvest my dividends will pay off for the best long-term returns. I’ve already seen that with the companies in my portfolio I’ve held the longest – they have the highest ROI (Return on Investment).

My stocks which I view as businesses are the “cogs in the machine” that continue to drive my income through “dividends”.  My bonds and bond ETFs are much the same. If I start breaking down the machine and selling off the parts, then I will no longer have a machine.  I’ll simply have a pile of cash without any cash-flow! This is a point Lowell Miller drove home in his bestselling book, The Single Best Investment.
So stick with the plan! You’ll be the winner in the long run. ;)

Readers, what’s your take? Do you have an investment plan for 2013? Do you like to buy-and-hold, or take profits on your winners?

This article was written by Dividend Ninja. If you enjoyed this article, please subscribe to his feed [RSS]

1 comment:

  1. My plan is based upon income. Specifically I am trying to build a portfolio that will someday allow me to replace the income from my job with income from my investments. I have a set of modest annual goals for my portfolio's income, $x in 2012, $y in 2013, etc.

    As my goals are based upon my income, I don't care that much about the change in capital in my positions. I admit that it's nice that most of my stocks have increased in value since I purchased them, but I often find myself wishing they hadn't gone up. Since I am reinvesting my dividends to build my portfolio's income, increases in the price of my stocks translates into less stock acquired every three months when my dividends arrive and are re-invested.

    One thing I believe too many people do is get involved in some sort of competition against others. They feel they "need" to beat "the market" or their uncle's dog's chewtoy company portfolio. Since no one really tends to beat the market long-term (even people considered the "best" investors ever end up coming out about even with the major indices when you look back at their entire career) it's a rather futile goal to chase. My only concern today is to make whatever purchases are needed to exceed my personal goal for this year. If I do worse than Warren Buffet or the S&P 500 index or Skippy the Wonder Turtle's super picks, it's unimportant. Warren, the Standard & Poors company and even Skippy have different goals than I have (I heard a rumor that Skippy is out to corner the turtle food market and is using his investments to build capital for his master plan!)

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