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The Best Way to Beat the Market 9/27/16

The Best Way to Beat the Market

    As usual, there are market pundits who are calling for a correction or even a collapse in the financial markets. And, as usual, others claim that we are about to experience a period of historic advances.

    Such pronouncements, especially when markets are at historic high levels, are likely to make investors wonder whether to take profits and wait on the sidelines for great buying opportunities to materialize. But what if they don’t and what if the market moves straight up from here?

    Of course, depending on your own circumstances, you may need to protect your profits. But, in general, if you have money earmarked for investing, then it is best to keep it invested.

    The important word here is Investing—as distinguished from Speculating.

    As an Investor, your objective is to identify and become comfortable with a long-term strategy to increase your wealth.

    The goal of the Speculator is to make short-term gains on transactions. There’s nothing wrong with trying to make short-term gains but over the long run, it won’t achieve the desired result. Why? It’s risky to make big gambles on a few trades. To find a diversity of good gambles, you’d need to spend the time and attention of someone whose business is investing.

    In other words, Speculating is not for amateurs. What’s more, professional investors are also subject to the vagaries of the market and more often than not, the market fools them too. Only the rare professional is able to achieve success by speculating. A more reliable source of income is the fees they collect from their customers.


    The most reliable strategy for building wealth over the long term is to identify a broadly diversified portfolio of high-quality stocks and remain invested over the long-term. That way, you don’t pay buy and sell fees, you don’t reduce your holdings with taxes on any short-term gains, and you don’t risk being out of the market when it surges forward. (Judging from past performance, the market moves consistently in an upward direction, but, of course, there are sharp drops from time to time. Trying to time those drops has proven to be a losing battle.)


    Which stocks belong in a core portfolio for long-term wealth accumulation? For the most part, we suggest dividend-paying stocks. The fact is that dividends have contributed nearly a third of all equity returns since 1926. In fact, they have accounted to 46% of all returns during the period from 1989 and 2014. So dividends give you a level of protection in down markets. And if you reinvest those dividends, you will be buying even more shares when the price is low. And the best way to do that is through the company-sponsored direct investment plan (DRIP)—assuming that the company offers this investor-friendly option.


    I know you have heard me sing this song before. But the truth is, I’ve been involved in financial markets since 1959, when I made a market in municipal bonds at a Wall Street firm, and I believe that DRIP investing (which I learned about in 1984) is the single most reliable way to build wealth.


    DRIPs allow you to make (or set up a schedule for) dollar amount investments that go directly into your own account at the company transfer agent. Dividends can be automatically applied to that account to purchase additional shares. Shares are purchased on the next scheduled investment date. While it is probably the BEST WAY for anyone to invest, for people who don’t have a stash of funds available for investment purposes, it is probably the ONLY way to invest.

    At Moneypaper, we’ve perfected the art of DRIP investing. We use our INVEST% calculations to invest even more than usual when prices are low and we use our ex-dividend date strategy to invest each quarter in time for the next quarterly dividend. If you establish a schedule at the wrong time, you miss the extra dividend every time you invest--for as many years as you are building wealth in that company! (Prove it by compounding the first quarter’s loss over the next 20 or so years, and then compounding the next quarters’ loss over the years, and then the one after that, and so on. There are four quarters every year for however many years you are invested. It turns out to be a shockingly large amount!) By making regular quarterly investments into high-quality dividend-paying companies—especially those that have the ability to consistently raise their dividends--just before the ex-dividend date you will routinely be adding extra amounts that will compound over the long term to enhance your returns.


    Below is a sampling of companies that offer DRIPs that have histories of consistently raising dividends—some for 25 years or more! We are providing the ex-dividend date for each company so you can set up your investing schedule to get the maximum benefit from your dividends.


    *=This company does not charge fees for investing (or reinvesting dividends) through their DRIP.

    No. Yrs=Consecutive years of higher dividends;

    MR%Inc=Most Recent % increase;

    LY Ex-Div=Last year ex-dividend dates;

    Ann Div=Annual dividend;

    DGR=Dividend Growth Rate.


    Should you decide to enroll in a company DRIP, keep in mind that it may take several weeks to complete the enrollment process. Click the company name for more information about the provisions of the company DRIP.

    Once your account has been established, you should set up a quarterly pattern of investing before the next ex-dividend date. For instance, for a company with an ex-dividend date of Nov 15 and a next investment date of Nov 10, your schedule might be November 1, February 1, May 1, and August 1.

    Here is a complete list of all U.S. companies that offer "No Fee DRIPs." (Use the ex-dividend calculator to determine the best time to make your regular investments.) You can quickly get the ex-dividend dates of any company by entering the ticker symbol into our handy Ex-Dividend Date Calculator.