"To get the required rate of return due to" Dow-portfolio
"must be not more than fifteen minutes per year, no research papers and one copy of
" The
Wall Street Journal "; this requires a lower commission, involves minimal risk,
brings an average annual rate of return, three times the yield
average mutual fund, and does not require for its realization is nothing but a phone or a
modem to connect to the broker with a very low commission.
Index funds
are the most useful invention since except soap, but if you can achieve better results
than they? Do you want to achieve the best results? The only
investment decision - investment in an index fund - can bring you higher returns than 80%
or 90% of all other mutual funds, and perhaps that is all you want or you can bring in
their investment activities. But you can achieve more. To do this,
of course, require more work for it. About 15
minutes in a year, but once you get into the main idea.
Think about
this: if every year you will be able to exceed the average market yield at least 2%, then
25 years the amount in your account will be approximately 50% higher. This - the magical effect of compound
interest. Of course,
exceed the market by 2% annually for 25 years - no easy task. Most
managers of mutual funds would sell their own grandmother for a record. And there is
no guarantee this, but if you study the history of investing with this strategy, you'll
see that over the past 25 years, she brought the yield, which exceeded the market average
at a much more substantial amount. (Performance
in the past are no guarantee of future results, please keep that in mind all the time.)
This
strategy called for the source of origin, site The Motley Fool: Foolish Four. It is one of the strategies Dow dividend. In fact, all
the Dow dividend strategy superior to the market by 3% or more over the past 25 years. Foolish Four
strategy we like more than others, because it combines excellent yield with a relatively
low risk.
One subtlety: because all of these
strategies involve the sale of shares each year, their use will lead to the need to
annually pay a tax on capital gains, unless you are using a special account, subject to
tax relief. Holding stock index fund, or simply buying
and holding stocks for many years to bring income not taxable annual tax on capital gains,
so the Foolish Four strategy will work better if you use the account type of IRA, rather
than ordinary investment account.
Again explain - a strategy works, by using
a taxable account, but loses some of its advantages compared with long-term strategies
"buy and hold". If you have a pension or an ordinary
investment account, make sure that the strategies requiring more frequent transactions of
sale, you are using exactly the retirement account.
Using Dow-investment strategies, you limit
your choice of investment group of companies that demonstrate financial strength, achieved
leadership in its sector (and, indeed, world leadership) and are the most blue of all the
blue chips. If you are from this group of select few
companies, which on average exceeded those of other members of the group, you can make
high profits with low risk and exceed the market without spending many hours studying the
financial statements of each company, the competitive environment and competency
management. So, how do you select those few companies
that will surpass all others? Now we explain it. First, let's look at the whole group.
Naturally, we are talking about the index
Dow Jones Industrial Average. Many do not even know that the famous Dow
actually includes only 30 companies. That is, 30 companies representing the U.S.
industry. In order to get to the index Dow, the
company must be a leader in its industry, financial stability, etc. -
We have already mentioned this above. The idea is that the companies included in
the index Dow, can survive the hard times (we are very hope so, otherwise the strategy
would not work), but at the same time, they have the resources, experience and the
universal recognition that the well through most of all storms. Their condition can deteriorate for some
time, but they are rarely able to collapse.
Secret (actually, not so very secret)
Success strategies Foolish Four, and indeed all strategies Dow-investment is the dividend
yield. This - a key indicator that helps to select
those few stocks that are undervalued compared with other shares of Dow, but at the same
time, remain financially strong. Dividend yield is the annual dividend
divided by the current price action. This is - akin to the interest rate action.
(Dividend yield, of course, is only part of
the revenue that you get from the ownership of the action. Investors also expect the price
of their shares will increase and will bring them good capital gains. Dividends plus
capital gains constitute gross income for the shares.)
Action may lose favor with investors for
many reasons - competition, a large trial, the global financial instability, low profit
companies, etc. This, by itself, leads to a drop in prices
because some investors are generally inclined to panic and sell shares, if short-term
prospects look unattractive. While these investors believe that the
action is drowning, we say that she went up for sale.
Until then, while the company continues to
pay its regular dividend, this price decline leads to an increase in dividend yield. (Note that
the dividend yield = dividends / price). And as long as the company can stand on a solid
financial basis and is able to survive this storm (which is why we restricted the choice
companies comprising the Dow), a higher dividend yield will be attract
investors, which will lead to an increase in the share price, and thus, the action will
survive the next stage of the cycle, when its price increases, and soon restored to the
public location.
Of course, developments are not always
precisely in such a scenario. Some stocks may not recover for years, and
some companies get into such serious trouble that are forced to reduce dividend payments,
making their shares fall even lower. Such is the nature of investment. Get used to it.
However, in
order for this strategy to work, not necessarily the best shares to buy it or certainly to
avoid actions that failed, you just need to choose three or four stocks with above-average
performance over several years and do it consistently, year after year. That's all
you have to do, and this alone will bring you a stunning profits.
The main thing - to choose these few
stocks. To do this you need three things: a list of
the current composition of the index Dow, dividend yield of all these stocks and their
current prices. All these figures are widely known, you can
find them in any financial publications or on a set of Internet sites.
There are three basic variations on the
theme of Dow-dividend strategies. The first of these is known as the "10
best returns and is so easy to buy 10 stocks with the highest dividend yield (in dollar
terms, not in fractions of shares) and to keep them within a year. After a year, need to review their
statistics, to sell shares that are not in a top ten and replace them with those that
produce the best dividend yield at the current moment. Just? From 1974 to 1998. This approach has brought the average
annual return of 17.95%, significantly higher than the results of many professional
financial managers. In dollar terms, investment portfolio of $
10,000 would have grown over these 25 years to $ 620000. Compare this figure with the average yield
of all Dow: it was for the same period, 15.03%, which would increase the same $
10,000-tion portfolio merely to $ 330000.
The second variation, popularized in the
book by Michael O'Higgins "Beating the Dow", is called "Beating the Dow 5, BTD5". In this case, you start with the same 10
stocks from the "10 best returns, but buy only the cheapest of five of those ten. For many years the use of this strategy has
been proven that buying the cheapest of these 10 stocks improves the rates of return
policies, without adding to it a substantial risk. Over the
past 25 years, the strategy has brought BTD5 yield of 19,39%, turning every $ 10,000
investment made in 1974, a $ 800,000-plus by the end of 1998
Nevertheless, we like most about the
strategy Foolish Four, combining extremely high yield with low risky investments. For its implementation is required to
choose only four stocks from the Dow, so she called the Foolish Four.
Promotions for Foolish Four strategies are
selected on the basis of the relationship between dividend yield stocks and its price. The exact formula is the dividend yield
divided by the square root of the share price. By calculating this ratio for all 30 stocks
from the Dow, you are composing a list of shares, starting with the highest value and
lowest. Stocks Foolish Four - it shares the second
to fifth position in this list. (The very
first action from the list we do not buy, because it really can expect a very bad times.
Too high dividends and the price is too low - it is sometimes too much good.) Purchase
these four stocks, hold them a year, then change a new set, selected by the same method. For 25
years, from 1974 to 1998, this strategy has brought an annual income of 24.55%, which
would make the portfolio from $ 10,000 to more than $ 2.4 million.