Very simple and straight forward. So now you know what the Rule of 72 is !
Have you ever heard of the Rule of 72? What is the Rule of 72 and why do investors need to know it?
The Rule of 72 is actually a very simple way of determining how long (number of years) it will take to double your investment. There are also variations like the rule of 70 and the rule of 69.3 but since the rule of 72 is the easiest to remember that is what we will concentrate on.
First keep in mind that this method is a shortcut method because to get 100% accuracy requires more complicated mathematics. The accuracy of this method is very close though so it will serve the average investor very well.
To determine the number of years it will take your investment to double you simply divided 72 by the actual number of the interest rate yield ( not as a percentage) and the resulting number is the approximate number of years it will take to double. It is most accurate when using rates between 6 % and 10% but will still come relatively close for other yields.
An example is:
My investment has an average yield of 7% – how long (number of years) will it take to double ?
72 / 7 = 10.28 years
or for 6% = 72/6 = 12 years
or for 8% = 72/8 = 9 Years
or for 10% = 72/10 = 7.2 years
Very simple and straight forward. So now you know what the Rule of 72 is !
Many investors say dripping your shares is the best way
To Drip or Not to Drip – The Age old Question!
What is DRIP? Drip stands for Dividend reinvestment program.
Basically in your brokerage account you have a the option of buying additional stock each time you earn dividends on your stock or you can keep the money for withdrawal and use or you can have it automatically purchase additional stock. I will mention here that many companies have in house programs for dripping their shares but I consider that a mostly antiquated system so I will not cover it.
As an example on 1/10/2017 let’s say your investment in Altria (MO) paid you a dividend of $92.40. You choose to reinvest this in more Altria stock. So on that particular day the stock was going for $67.92 per share. Your dividends of $92.40 divided by $67.92 would buy you an additional 1.3604 shares of the MO stock.
Many investors say dripping your shares is the best way, and some investors prefer to take their dividends as cash accumulating the money until they can find a bargain in a stock, such as waiting for a market correction and then they jump in. Both ways can have their advantages but personally I prefer the best of both worlds! With those stocks that I consider my “Core holdings” I will continually Drip the Dividend. Examples might be Johnson & Johnson, Coca Cola, 3M, AT&T, Procter & Gamble, Pfizer ………. On the more speculative type stocks or riskier stocks I usually take the dividends in cash. Once I accumulate a desired amount of cash I purchase a stock or stocks that I have deem to be at reasonable entry prices.
Some investors will hold off until there is a major “market correction” of say a drop of 10 or 20%. This certainly wise but you also need to consider how long will it take until the next correction and how much in dividends will you give up during that time frame. If you are currently bringing in $60,000 per year in dividend income how much additional income could you be adding had you invested that money immediately versus waiting for a correction to occur? If it were to take three years for example how much income could you have make off of an additional $180,000 in investments? Always think about the consequences for investing and not investing. It has been my observation that there is almost always a bargain of an investment out there where you can park your money. The bottom lines is, there are no definitive right or wrong answers in most areas of investing but just make sure you consider every angle.
If this is just too complicated or confusing for you, my advice would be to go ahead and Drip all the investments in your portfolio. Set them on auto pilot and don’t look back.
When in doubt — Let it Drip !
Your thoughts and comments are welcome !
“Just like the eggs – if you drop the basket you can break many if not all of them”
Special Easter Edition !
Just like eggs you should put all your stocks in one basket.
I have never met the Easter Bunny but I can almost certainly tell you that the Easter Bunny would never put all those boys and girls eggs at risk by placing them all in one basket, and neither should you !
There is a lot to be learned from the old adages that we really don’t pay much attention to and take for granted. There is a reason why they are repeated so much in our language and that is because they serve us well as reminders of life lessons.
Just like the eggs – if you drop the basket you can break many if not all of them. And with stocks , while they do not “break” they can break your accounts. I like to spread my savings out into many different accounts – and in differing institutions. I will grant you that it can be difficult keeping track of so many accounts but for me it is well worth it. It gives me peace of mind knowing that my little eggs have their very own safe and well lined basket to reside in.
Of course how many you have is strictly up to you and I suppose it would depend on how much money or little”eggs” to protect.
Banking – It is a good idea to have at least two Checking accounts and two Savings accounts at two different banking institutions ( I would also recommend that one of them be a credit Union). The same for Brokerage Accounts. I like to have at least two Brokerage accounts with two different Brokerages.
Now it can be a little difficult when keeping track of them but if you are like me and you want to help ensure the safety of your hard earned money it is well worth it.
In summary – don’t put all your “eggs” in one basket.
- Use Diversification – That is buy stocks in differing sectors, IE Communications, Oil & Gas, Financial, Consumer, Tech, ………………..
- Limit Investments to a certain percentage of the total Portfolio value – that is is you have 25 stocks and $100,000 in value you would limit the dollar amount of each stock to no more than $4,000 each or 4% of the total
- Use Risk Mitigation by have more stocks in a portfolio – example – $100,000 with 10 stocks you have $10,000 at risk with each stock but if you have 25 stocks you are only risking $4,000 with each investment.
Investing is Fun and it can be very rewarding but you should always take precautions to protect yourself from losses. Protecting yourself takes very little effort and may help you sleep better at night.
Thoughts or comments ? We would love for you to share them with us.
“As a Dividend Income Investor – Why settle for lowering yielding stocks?”
The Top Ten Yielding Stocks from the Dividend Champions list for 2017 !
As you can see these are top quality stocks and each and every one of them have been paying dividends for over a quarter of a century and one, Target Corporation, for almost a half a century. Now these are dependable by any measure. As a Dividend Income Investor I like to choose the top yielding stocks. I could invest in an Index Fund (ETF) that will pay about half of these picks but why? You get double the income with these picks.
As a Dividend Income Investor – Why settle for lower yielding stocks? Take a look at the top yielding stocks from the Dividend Champions. And……….. hardly anyone can argue with the quality here.
|AT&T Inc. -33 Years
||T – 4.70%
|Mercury General Corp. -30 Years
||MCY – 4.25%
|Helmerich & Payne Inc.-44 Years
||HP – 4.31%
|Target Corp. – 49 Years
|Universal Health Realty Trust 30 Years
|National Retail Properties – 27 Years
|Chevron Corp.- 29 Years
||CVX- 4.00 %
|ExxonMobil Corp.- 34 Years
||XOM – 3.69
|Old Republic International- 36 Years
||ORI – 3.80%
|Consolidated Edison- 43 Years
||ED – 3.52%
Average Yield for all 110 Dividend Champion is 2.35%
Average yield of the S&P 500 is only 1.95%
The Average Yield for the top 10 Dividend Champions is 4.125% ( as of 3/27/17)
If you had $100,000 invested in each here is the Income that would be produced :
All Dividend Champions = $2,350 per year
S&P 500 = $1,950 per year
Top Ten Dividend Champions = $ 4,125
Double the Income = Double the Fun ! Why settle for less? For me it doesn’t make sense to do so when you can increase your quality of your holdings and make more income at the same time. With just a little thought we doubled our income. This is what Dividend Income Investors do ! We don’t just invest – we think first, then invest.
This data is courtesy of David Fish and is derived from his CCC List ( Dividend Champions, Contenders and Challengers) You can visit his site(The DRiP Investing Resource Center)
and download the CCC list in Excel or PDF format.
We would love to hear your thoughts – Feel free to share with us !