Do You Have a Plan?

Predicting the marketsDo 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?

26 Responses to “Do You Have a Plan?”

  1. farcodev

    Dec 27. 2012

    My only plan when I sell is: “sell only for a purpose, THINK REVENUE!”

    So in clear when I sell on stock it’s for, beside to take a gain, raise my dividend revenue by buying a other divy stock (valued better). Out of that there’s no reason to sell a divy stock, apart if the company become fishy.

    ” 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!”
    That resume all the thing :)

  2. I love the analogy about selling off your dividend stocks being akin to selling off the machine that provides you with your livelihood.

    I am actually hoping that the stock market falls by 10% – 20% in 2013. Actually, the long term effects of political indecisiveness in the US might be much worse than we all thought, as important decisions are happening in the last minute.. Which implies poor leadership at the top in my opinion. Anyway, since i accumulate stocks every month, I would be happy to buy when they are cheaper..

    • The Dividend Ninja

      Dec 28. 2012

      DGI, thanks! Nice to see you around the comments. Your articel on Intel is excellent btw. :)

      • Thank you sir! I think many dividends investors are buying INTC only because it has a high yield, and don’t really take into consideration the business prospects.

  3. Glenn

    Dec 28. 2012

    You can actually download The Single Best Investment PDF for free at the Miller Howard website:

    http://www.mhinvest.com/files/pdf/SBI_Single_Best_Investment_Miller.pdf

    • The Dividend Ninja

      Dec 28. 2012

      OK Glenn good to know. But don’t you want to click on the Amazon link,and help feed the Ninja family for a week?

      • Glenn

        Dec 29. 2012

        A week! You guys must eat like birds :-)

        I’ll take a look at some of your other book recommendations and see if I can help the family.

        I mention the SBI book to everyone I know (who don’t roll their eyes when I talk about investing :) as it’s such a good resource on dividend investing.

        • The Dividend Ninja

          Dec 29. 2012

          Glenn, thanks! I do need to update my resources page,as you can see from my messed up code. I’ll add the free link in for the Single Best Investment across my sites when I do that update. ;)

          Cheers

  4. I agree sometimes doing nothing is a valid plan. This has been my plan for the past month or so. Once I see the fallout of the fiscal cliff my plan for 2013 is to build a sizable position in a municipal bond fund and continue to add to blue chip companies that pay a dividend.

    • The Dividend Ninja

      Dec 29. 2012

      Marvin, with a long-term buy-and-hold approach you don’t need to worry about fiscal cliff or any other financial news. Doing nothing is the plan. :)

      I’ve seen all kinds of volatility and ups and downs over the last three years. My long-term buy and holds are clearly the winners. I’ve seen freinds sell postions, only to watch them keep going up 2 or 3 fold. In the end, I truly believe buy and hold with dividend payers is the way to go.

      The bonus is you can always take advantage of the dips to buy more shares! :)
      Cheers

      • Marvin

        Dec 30. 2012

        I agree!

      • Martin

        Dec 30. 2012

        Ninja, I think we can use the cliff as a great opportunity to add stocks on sale into our portfolios. I actually am looking forward to it that I can be adding more shares extremely cheap. Can you imagine adding JNJ for example at $48 a share? That would be a great deal! Considering that dividend paying stocks tend to recover quickly.

  5. The Dividend Blogger

    Dec 28. 2012

    Much like you, I plan on doing nothing for now. Probably like you, the last 6 weeks or so have seen a big rise in my stocks. I would imagine without the fiscal cliff issues, the rise would have even been higher. Historically, the next few months is not a great time to buy stocks, as prices tend to increase – we’re looking for good prices, not high ones! My plan is to hold tight until June or so then re-assess once the “sell in May” prices have arrived. Over the last several years, all of my stock purchases in June through October have been by far the best value.

    • The Dividend Ninja

      Dec 29. 2012

      Dividend Blogger, welcome to the blogging scene! Sounds like you have a great plan with some history behind it. Yes I agree June to October tend to be good months for adding positions. :)

      Cheers

      • The Dividend Blogger

        Dec 30. 2012

        Thanks – my experience has been that you should hold on to your winners, as long as they don’t get out of line in terms of valuation. If you’re buying into a business, you’re buying into the idea that 10 or 20 years down the road, they’ll be two or three times the size and so will your investment. If you are always selling after a 20-30% gain, you’re never going to hit those numbers. And you can never predict what stock prices are going to do next.

  6. Brett Wilson

    Dec 30. 2012

    I also believe in holding for the long term. There is a reason why there is no Warren Buffet of day trading. Long term investments simply perform better.

  7. Martin

    Dec 30. 2012

    I read SBI book twice and consider it the best dividend book I have ever read so far. Great way to look at the dividend stocks.

    I am learning the process of doing nothing, sometimes it is not easy at all. So many stuff out there can be quite tempting and making you or forcing you to trade. Currently in mu portfolio I hold a few dividend paying stocks and accumulating before I add new share. This approach also helps me to wait for the price when the stock goes down to its support where I add more shares. For example I plan on adding SDY (to increase diversification) ETF to my holdings (it also pays 3.3% dividend). When I added it to my watch list the stock was marching up from its low at $55.6 to $59.51. By doing nothing I saved myself some cash since now it is going back down (currently $57.3) and it may reach the long term support trend line or even get below 200 day MA and if the cliff hits us it may go even lower, where I would buy.

    This wasn’t a;ways easy to me since I wanted to be always 100% invested and I was deploying cash immediately after depositing it into my account. Not anymore, learning to be patient and do nothing.

    • The Dividend Ninja

      Dec 31. 2012

      Hey Martin,

      I agree with you, Miller’s SBI is one of the best investment books written, period! :) And yes “learning the process of doing nothing” is not easy at all.

      I tend to invest once I have a lump sum of cash available, or DRIP my dividends. It’s nice to be able to buy stocks when they are lower priced, in order to obtain more shares, but its not my main goal. If the price is discounted, great! If not then I’ll hold it in index bond or index equity funds, or top up current holdings.

      Cheers! ;)

  8. Mick

    Dec 31. 2012

    I have a feeling the “fiscal cliff” has been way overhyped and will not be the doomsday its been made out to be, I wouldn’t be surprised to see stocks take off in January.

    • The Dividend Ninja

      Dec 31. 2012

      Mick, I actually agree with you 100%. :) See my recent post on Ninja’s New Year in Review: 2012

      Cheers

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