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?