Author Topic: Investing the stash how much market timing is MMM?  (Read 12782 times)

vwDavid

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Investing the stash how much market timing is MMM?
« on: February 14, 2012, 12:08:17 PM »
Ok, so my wife and I started reading MMM about 4 months ago and we've stepped up our savings game. Prior to this we were both savers in the 25% per year range now post MMM we are on track for 40% shooting for 50%. Bike trailer to be purchased within 30 days...

We already have a pretty senior level stash but it is not invested well at the moment. About 10% in nice dividend achievers/aristocrats a bit in an index, (gasp a BRIC MF) and the rest in cash at 2%.

I have a full plan to get my stash invested in dividend bearing stocks to 'roll my own' index fund with 40 good blue chips with long histories. But what about market timing? What about world politics and world economy. I try to convince myself to wait for the double dip all the while I'm not getting juicy compounding dividends.

I guess I haven't the badassity yet to quadruple down and execute the plan. The whole greece/PIGSS/ USA devaluation thing (I am in Canada) does create some fear in me.

MMM says do not read the news except for sound financial sources once a week at the most.

I need some psychological investment advice and some concrete investment advice.

I know this is crystal ball gazing but is anyone else out there in the same position? Stash ready and willing to rocket you to retirement but just need to plug it in the market?


chschen

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Re: Investing the stash how much market timing is MMM?
« Reply #1 on: February 14, 2012, 01:43:20 PM »
I'm in the same boat except looking to invest money that I rolled over from my 401k into a traditional IRA. Really interested in hearing people's responses.

vwDavid

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Re: Investing the stash how much market timing is MMM?
« Reply #2 on: February 14, 2012, 02:15:37 PM »
Wow, after 82 views I'm glad to hear at least that I'm not the only one out there wondering....

decon50

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Re: Investing the stash how much market timing is MMM?
« Reply #3 on: February 14, 2012, 02:16:04 PM »
have you considered investing in monthly installments rather than in one lump sum (ie dollar cost averaging)? 

vwDavid

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Re: Investing the stash how much market timing is MMM?
« Reply #4 on: February 14, 2012, 02:22:26 PM »
Yes, I did in passing...maybe I need to consider it again.  Even if I went in 50% now, 50% later the 'management expenses' start to add up even with online broker trading costs. If I need 40 trades at $10 each to fully invest- even if I go 50-50 the expenses double to $800.

If I set up some sort of monthly or quarterly system it's that many more trades. I guess the expenses are really a one time thing though and dividend income will quickly make them disappear.

Thanks for the comments. Looking for more...

jss027

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Re: Investing the stash how much market timing is MMM?
« Reply #5 on: February 14, 2012, 04:36:48 PM »
OK...here is the answer ya'll have been looking for.  If you are building your own index of blue chips then you should strive to never sell.  The key is to make sure the dividends are being automatically re-invested for free.  What these "dividend aristocrats and champions" provide that index funds and mutual funds cannot is "compounding dividend growth".  Over the last 10 years...many of the biggest and best have increased their dividend (on annual average) in the 15 - 25% range. 

For example (avg annual dividend "increase" for the last 10 years / No of years of consecutive increases): [AFL - 20.4%/ 29] [TGT - 17.5%/ 44] [KO - 10.1%/ 49] [MCD - 27.4%/ 49] [LOW - 29.6%/ 49] to name a few well know big companies that you probably all have in your 401k but are not receiving the benefit of these compounding dividends. 

So I've ran some forecasts using excel, and what's interesting is this:  Even over times like these (the lost decade) where these companies stocks stay complacent or even go down in value...the dividend growth investors "dividend income" continues to increase exponentially...and for extreme savers (40k+ per year) you could easily develop passive dividend income that exceeds $100k per year within about 10 years or so as long as those dividends are reinvested (and that was assumming 10% increase).  Because of compounding...5 years after that accelerates to $500k per year in dividends...or $350k if you stop reinvesting them and started living on them. 

Most of us have been brainwashed to think of our wealth in terms of "Net Worth"...but the mustachian way is to think of "how much passive income one receives per annum".

So starting today....refocus your attention to track your dividend income rather than focus on you total value of the stock or even what today's dividend yield is.  See how much it increases year after year.

Cheers

vwDavid

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Re: Investing the stash how much market timing is MMM?
« Reply #6 on: February 14, 2012, 04:54:12 PM »
Our problem is we want to semi-retire in 2-3 years thus we didn't start early enough to realize exponential dividend growth (which I am on the same page as you). But it will still be a nice income stream.

Most of my current DIV holdings are in the DRIP form so I can reinvest for no charge and buy more for no charge and I take advantage of that and will continue to do so. However, for the remainder of our stash I will not go the DRIP route as we will be looking at taking the distributions as income very soon...


jss027

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Re: Investing the stash how much market timing is MMM?
« Reply #7 on: February 14, 2012, 07:14:16 PM »
At semi-retirement, will your passive income exceed your monthly living expenses?

arebelspy

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Re: Investing the stash how much market timing is MMM?
« Reply #8 on: February 14, 2012, 08:23:45 PM »
You can't time the market.  Dollar cost average.

YMMV, good luck.
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vwDavid

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Re: Investing the stash how much market timing is MMM?
« Reply #9 on: February 14, 2012, 10:29:20 PM »
At semi-retirement, will your passive income exceed your monthly living expenses?

Yes of course. With our new MMM budget we are going to learn and practice for 2-3 years our passive income should exceed our expenses and any part time or hobby income will be bonus.

I've done some reading lately of people claiming dollar cost averaging is not really possible...I need to find those links again and try to remember the sentiment for an MMM rebutal...

Zoot

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Re: Investing the stash how much market timing is MMM?
« Reply #10 on: February 15, 2012, 05:25:20 AM »
We already have a pretty senior level stash but it is not invested well at the moment. About 10% in nice dividend achievers/aristocrats a bit in an index, (gasp a BRIC MF) and the rest in cash at 2%.

Just wondering:  where are you getting a 2% return on cash?  I have a chunk of cash earning 1% at a credit union, but haven't actively looked for better returns in a number of years--so I'd be very interested in the details if you're willing to share.  If there's a better return out there, I'd move the money in a heartbeat!

Thanks!

zt

rjack

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Re: Investing the stash how much market timing is MMM?
« Reply #11 on: February 15, 2012, 05:58:23 AM »
You can't time the market.  Dollar cost average.

I believe that you can time the market by using the graph below as an indicator of when the market is high, average, or low.

http://www.multpl.com/


arebelspy

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Re: Investing the stash how much market timing is MMM?
« Reply #12 on: February 15, 2012, 07:05:56 AM »
You can't time the market.  Dollar cost average.

I believe that you can time the market by using the graph below as an indicator of when the market is high, average, or low.

http://www.multpl.com/

So explain Black Monday to me.  And what is it now?  And what do you do based on that information?
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rjack

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Re: Investing the stash how much market timing is MMM?
« Reply #13 on: February 15, 2012, 07:56:38 AM »
Quote
So explain Black Monday to me.
I can't, but I really don't care.
Quote
And what is it now?
It is high (22.5) compared to the historical mean (16.4).
Quote
And what do you do based on that information?
Good question! At the end of every month, I reallocate my bond/stock assets based on the chart. The allocation is something like this:

***PE Ratio******Stock Allocation******Bonds/Cash***
> 300%100%
25-3020%80%
20-2540%60%
15-2050%50%
10-1560%40%
5-1080%20%
< 5100%0%

And before you ask, my transaction costs are zero because I trade Vanguard ETFs in a Vanguard IRA Brokerage Account.

arebelspy

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Re: Investing the stash how much market timing is MMM?
« Reply #14 on: February 15, 2012, 08:00:12 AM »
Wait, so you solely base your investing on stocks P/E?  Even though the rate of return on bonds and cash is terrible right now?  That doesn't factor in at all?
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rjack

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Re: Investing the stash how much market timing is MMM?
« Reply #15 on: February 15, 2012, 08:22:53 AM »
Correct. I believe the volatility of the market and associated returns swamp the lack of returns for bond and cash. In other words, if I time the market and sell when the market is high and buy when the market is low, then that will outweigh the low cash and bond returns.

vwDavid

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Re: Investing the stash how much market timing is MMM?
« Reply #16 on: February 15, 2012, 09:23:32 AM »
I am in Canada and my ING personal investment account offered 1.5%. Then, we had a baby and they offered me joint parent/child account with a rate of 2%. I did a bit of due diligence to ensure there would be no or minimal ramifications and I parked my stash cash in my child's investment account at ING Direct.ca.

Cheers, David

We already have a pretty senior level stash but it is not invested well at the moment. About 10% in nice dividend achievers/aristocrats a bit in an index, (gasp a BRIC MF) and the rest in cash at 2%.

Just wondering:  where are you getting a 2% return on cash?  I have a chunk of cash earning 1% at a credit union, but haven't actively looked for better returns in a number of years--so I'd be very interested in the details if you're willing to share.  If there's a better return out there, I'd move the money in a heartbeat!

Thanks!

zt

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Re: Investing the stash how much market timing is MMM?
« Reply #17 on: February 16, 2012, 05:16:17 AM »
The key is to make sure the dividends are being automatically re-invested for free.  What these "dividend aristocrats and champions" provide that index funds and mutual funds cannot is "compounding dividend growth".

Out of interest, what do you imagine happens to the dividends paid out to index funds? They buy more shares of the companies in the index, which in turn pay more dividends - compounding, in other words...

I completely understand the appeal of holding a dividend-paying stock, but I'm still invested in an index and enjoy the knowledge that those same dividend payments are swelling my bottom line...

(I don't believe I'm smarter than everyone else, so I don't try to pick stocks. That's the main reason. It makes for boring investing though. )

vwDavid

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Re: Investing the stash how much market timing is MMM?
« Reply #18 on: February 16, 2012, 09:04:18 AM »
I also do not believe that I am smarter than anyone else. But I am smart enough to read up on historically sound dividend paying companies and I believe you can buy a mattering of just those and be better off than the herd.

Even most vanguard index funds pay dividends 2% or less. If you "choose" carefully a handful of the big boring bluechips in those funds you could likely have better performance- IMO.

A great book: Single Best Investment by Lowell Miller.

rjack

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Re: Investing the stash how much market timing is MMM?
« Reply #19 on: February 16, 2012, 10:09:01 AM »
But I am smart enough to read up on historically sound dividend paying companies and I believe you can buy a mattering of just those and be better off than the herd.

I think that this is a reasonable approach. However, be aware that dividend yields are low from a historical perspective:

http://www.multpl.com/s-p-500-dividend-yield/

vwDavid

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Re: Investing the stash how much market timing is MMM?
« Reply #20 on: February 16, 2012, 10:20:13 AM »
Thanks for posting that link rjack. And your message is exactly my reason for posting this post in the first place.

To bring this discussion back on track it is clearly evident that yields are not the highest (nor are they the lowest) at the moment. They do seem relatively low as the market is relatively high.

Thus the question- for someone with a stash that needs to get it invested and start compounding what to do?

-Hold out, wait (engage in elusive market timing, hoping for a double dip or euro fallout or???)
-invest by piecemeal (value cost or dollar cost averaging)
-buy in right now and start compounding now

Anyone else considering their options in this specific matter?


But I am smart enough to read up on historically sound dividend paying companies and I believe you can buy a mattering of just those and be better off than the herd.

I think that this is a reasonable approach. However, be aware that dividend yields are low from a historical perspective:

http://www.multpl.com/s-p-500-dividend-yield/
« Last Edit: February 16, 2012, 10:24:01 AM by vwDavid »

Dave

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Re: Investing the stash how much market timing is MMM?
« Reply #21 on: February 16, 2012, 11:21:31 AM »
My vote is to buy in now - to do otherwise is trying to time the market. You're basically saying that you know something that other investors don't (i.e. they're happy to be in the market but you think it's overpriced, or vice-versa!)

Cost averaging refers to the practice of investing regularly regardless of the state of the market, i.e. not trying to judge whether things are high or low or going up or down - exactly what you would be doing by holding off.

I am putting my money where my mouth is here - I haven't been investing long but I am investing regularly and trying not to worry about the noise over market value / direction.

Dave

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Re: Investing the stash how much market timing is MMM?
« Reply #22 on: February 16, 2012, 11:26:27 AM »
I also do not believe that I am smarter than anyone else. But I am smart enough to read up on historically sound dividend paying companies and I believe you can buy a mattering of just those and be better off than the herd.

Even most vanguard index funds pay dividends 2% or less. If you "choose" carefully a handful of the big boring bluechips in those funds you could likely have better performance- IMO.

I'm not so sure, but I respect your willingness to find out!

If it was so easy to beat the market by picking stocks, you'd expect highly paid fund managers who work full time at evaluating the same stocks to be able to beat the market consistently too, but that's not the case. If virtually no professionals can manage it, I don't fancy my chances!

vwDavid

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Re: Investing the stash how much market timing is MMM?
« Reply #23 on: February 16, 2012, 03:35:31 PM »
Ok, to throw another wrench in the works, what do you MMM forum readers think of this article:

http://money.cnn.com/2011/01/25/pf/expert/investing_roth_ira.moneymag/index.htm

jss027

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Re: Investing the stash how much market timing is MMM?
« Reply #24 on: February 16, 2012, 03:59:24 PM »
Quote from Dave "Out of interest, what do you imagine happens to the dividends paid out to index funds? They buy more shares of the companies in the index, which in turn pay more dividends - compounding, in other words..."

This is not accurate and mathematically incorrect from a cashflow perspective.  There are only ~100 US companies that have consistently increased their dividends every year for more than 25 years in a row.  Mutual funds spend money advertising, buying riskier stocks that do not pay dividends, pay themselves profits for their "expertise", etc.  I don't mind demonstrating this if you provide me the ticker of any mutual fund or index fund of your choice.

The stock that increases it's dividend increases your yield on cost.  Eventually, 20 - 35 years down the road...the annual dividend can exceed the total amount you invested (you get you money back every year!!!).  Buffet has talked about this with his shares of KO pretty often.  His cost basis in KO is ~1.3billion.  In 2011, he received ~$376Million in dividend payout which equates to ~29% yield on cost.  This ain't happening in an index fund.

Jason

Dave

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Re: Investing the stash how much market timing is MMM?
« Reply #25 on: February 17, 2012, 06:17:32 AM »
I must confess I deliberately skimmed around the whole question of non-dividend paying stocks. All I can offer really is a strong recommendation to go and read Debunking Dividend Myths which is what got me away from the initial idea that I was smarter than non-dividend investors, and ultimately went for an index fund.

It's true that there is always an expense to holding an index, in my case a TER of 0.27% for the HSBC FTSE All Share. However, there are certainly advantages. For instance, it costs me 10 to trade, so if I was in the business of speculating on individual shares, I'd need to expand each position by at least 3700 (getting on for $6000) a year, if I only traded once a year, to make it cheaper to hold the share than the index. Sadly, I don't earn enough to make this feasible over a diversified portfolio of, say, 20 shares!

In contrast, it's free to trade the index, so you can move money between equities in various markets and bonds, should you wish to, without that headline rate of 0.27% changing at all.

I think it depends what you want. As it says in the article linked above, if I did want to draw a regular "dividend" income from the index, I could do so by selling an appropriate amount of the index, there's no real difference. I hope it's more efficient to have the reinvestment done at a massive scale, rather than having to worry about cheques and trading in person. :)

jss027

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Re: Investing the stash how much market timing is MMM?
« Reply #26 on: February 17, 2012, 09:38:25 AM »
I see.  Thanks for the book recommendation.  In the same spirit, I liked and recommend "the little book of big dividends", and the blog www.dividendgrowthinvestor.com   

In your situation, probably is best to build up the stash in an index and maybe transfer to a great company like JNJ or PG after you've accumulated a healthy sized stash to minimize your expens in the transaction.  Provided it's at a reasonable price of course.  It's my opinion, that you don't have to be a super smart analyst if you are investing in the biggest companies with a proven track record...basic knowledge will do.  In the grand scheme of things...as an investor, your goal should be to buy profits for the cheapest price.  There are certainly some metrics you could get to know for dividend companies like monitoring a healthy dividend pay out ratio, return on equity, debt, etc...but knowing fundamentally, most great companies pay out dividends because they accumulate loads of cash and they choose to payout to investors after they've utililzed the amount of profits needed to grow the business.  I usually only sell when a business cuts there dividend...which means they're in financial trouble.

I just want to point out a big company like JNJ.  Between 2000 and 2010 (Americas lost decade), sales rose from $29.172 billion to $61.587 billion, or 111%.  During that same decade, net earnings grew from $4.764 billion to $13.334 billion, an increase of nearly 180%.  That means profits grew faster than sales at a rate of 69% for the decade.

On a per share basis, the figure is more impressive because diluted shares outstanding have fallen from 3,075.2 billion to 2,788.8 billion, a reduction of 286.4 million shares, or 9.3% since the beginning of the decade.  Dividends per share grew from 62 to $2.11, representing a 340% increase.  Book value per share has expanded from $6.82 per share to $20.66 per share, an increase of 203%.

All in all, its been a great decade for Johnson & Johnson.  The stock trounced the S&P 500 and would have done even better except that ten years ago, shares ended the year at $52.53 on earnings per share of $1.55 for a p/e of 33.89 and an earnings yield of 2.95%.  At the same time, you could have bought an intermediate United States Treasury bond with a 5.07% yield.

Last thought...do you have access to sharebuilder in Scottland?  They only charge $9 a trade, or if you choose to set up automatic investments the transactions go down to $4 per trade.  Right now I've negotiated free trades for 9 months...so I'm taking advantage pretty heavily right now.  Good luck to you. 

Dave

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Re: Investing the stash how much market timing is MMM?
« Reply #27 on: February 17, 2012, 11:44:51 AM »
Thanks for the response :)

Lots to think about. At the moment as you say, I'm concentrating more on stashing funds away than on getting the very best return (which I feel means you need to try pretty seriously as an analyst. Maybe this would be something for me post-FI)...

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Re: Investing the stash how much market timing is MMM?
« Reply #28 on: February 17, 2012, 04:18:07 PM »
I need some psychological investment advice and some concrete investment advice.

I know this is crystal ball gazing but is anyone else out there in the same position? Stash ready and willing to rocket you to retirement but just need to plug it in the market?

Well, I can't predict the future for you, but I can share some of my story.  I was in the same position as you 2 years ago when I discovered ERE--good savings habits and a decent 'stache, but not well-invested (and I had some concern about a double-dip then).  Since then, I have learned a lot about investing and have been building a portfolio of dividend stocks that I have been quite happy with so far and would cover most of my expenses.  I basically used the same approach I use to buy my groceries--I made a watch list of stocks and bought them when they were on sale (i.e. on dips).  Building a portfolio of 40 stocks all at once would have been overwhelming for me, but buying a few stocks each month was a lot more doable, enjoyable, and provided more time for research.  I generally buy a full position of each stock in one transaction, so trading fees wouldn't be any higher with this approach than any other.  Also, as I got more into investing, I discovered some smaller-cap stocks that I didn't know about when starting my investment journey--some of those have made great additions to my portfolio.

Another thing I did when I started was build a ladder of GICs (CDs for US readers), one maturing every month for 5 years (to get the highest rate).  By doing that, I felt more comfortable investing the rest of my money in stocks knowing that if the stock market tanked and I couldn't find a job, I'd still have my (very) basic expenses covered for 5 years, which should be more than enough time for me to figure something out or the economy to recover.  However with interest rates continuing to drop and my other investments working out well, I'm considering shortening or eliminating that ladder by buying more dividend stocks as the GICs mature.  So I probably wouldn't recommend such a long ladder, but it's what I was comfortable with at the time, and it does pay more interest than any saving account.

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Re: Investing the stash how much market timing is MMM?
« Reply #29 on: March 18, 2012, 12:30:14 PM »
Correct. I believe the volatility of the market and associated returns swamp the lack of returns for bond and cash. In other words, if I time the market and sell when the market is high and buy when the market is low, then that will outweigh the low cash and bond returns.

You should read Common Sense on Mutual Funds and get back to us on your market timing. Admittedly though, what you are doing is pretty similar to just setting an asset allocation and rebalancing every month. You're just doing it the hard way.

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Re: Investing the stash how much market timing is MMM?
« Reply #30 on: March 18, 2012, 12:36:37 PM »
I also do not believe that I am smarter than anyone else. But I am smart enough to read up on historically sound dividend paying companies and I believe you can buy a mattering of just those and be better off than the herd.

Even most vanguard index funds pay dividends 2% or less. If you "choose" carefully a handful of the big boring bluechips in those funds you could likely have better performance- IMO.

I'm not so sure, but I respect your willingness to find out!

If it was so easy to beat the market by picking stocks, you'd expect highly paid fund managers who work full time at evaluating the same stocks to be able to beat the market consistently too, but that's not the case. If virtually no professionals can manage it, I don't fancy my chances!

+1

According to Common Sense on Mutual Funds, index funds will beat out mutual funds 80% of the time, year after year. The idea of actively choosing 40 or so blue chips is similar to choosing a mutual fund of the same blue chips. By the time you figure in transaction costs you're already behind. With an index fund, you can get 0 transaction costs and very low expense ratios.

Why bother doing anything else when you can beat around 80% of other investors by simply choosing a complete stock market index fund?

https://personal.vanguard.com/us/insights/article/fund-performance-012012

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Re: Investing the stash how much market timing is MMM?
« Reply #31 on: March 18, 2012, 10:07:01 PM »
I guess I have some sympathy for the point that you can buy a selection of dividend blue chips that will pay ~4-5% dividend. If they are solid companies who can (low leverage) and should 'stick to the dividend', and you only worry about cash flow and not short-term (10yrs) volitility in capital, then why not?

As a part of a total portfolio, awesome.

But IMHO you should never ever ever put all your stash in one asset class/place/bank/country, and most especially you should not be betting more than than 5% of your stash  on your own ability to beat the market. Not only is it gambling, it's gambling with demonstrably shitty odds.

Aloysius_Poutine

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Re: Investing the stash how much market timing is MMM?
« Reply #32 on: January 01, 2013, 04:38:37 PM »
Can anyone recommend some dividend-heavy mutual funds for Canadian investors? Looking for something similar to Vanguard's Aristocrats, but available in Canada. I have some stash in TD's e-series index funds, but they don't offer anything specifically stacked with dividend payers. Thanks

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Re: Investing the stash how much market timing is MMM?
« Reply #33 on: January 01, 2013, 11:02:26 PM »
I think there are two. There is an ishares etf. I forget the other. One of the two is a little heavily weighted to banks.

Do ur research.

AJDZee

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Re: Investing the stash how much market timing is MMM?
« Reply #34 on: October 28, 2013, 01:03:49 PM »
XDV.TO   &   CDZ.TO

aclarridge

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Re: Investing the stash how much market timing is MMM?
« Reply #35 on: October 29, 2013, 01:52:44 PM »
You might want to read this thread on lump-sum vs. dollar cost averaging.

http://www.mrmoneymustache.com/forum/investor-alley/how-to-do-dollar-cost-averaging-with-a-small-budget/msg106445/#msg106445

For you, since your accumulation years are mostly behind you, dollar cost averaging is more prudent because it's a strategy that results in a lower standard deviation of returns.

If you're dead-set on managing a portfolio of individual stocks, you better find a broker that isn't charging you $10/trade. Low-cost index ETFs would be a lot simpler and making benchmark market returns is probably OK for you, right? Don't try too hard to beat the market.

Undecided

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Re: Investing the stash how much market timing is MMM?
« Reply #36 on: October 29, 2013, 02:45:23 PM »
Quote
So explain Black Monday to me.
I can't, but I really don't care.
Quote
And what is it now?
It is high (22.5) compared to the historical mean (16.4).
Quote
And what do you do based on that information?
Good question! At the end of every month, I reallocate my bond/stock assets based on the chart. The allocation is something like this:

***PE Ratio******Stock Allocation******Bonds/Cash***

20-2540%60%

How has that worked out?

SPY Prices
Date   Open   High   Low   Close   Avg Vol   Adj Close*
Oct 1, 2013   168.14   176.47   164.53   176.23   131,014,200   176.23
Feb 15, 2012   135.63   138.19   134.29   137.02   166,032,700   132.11

Cecil

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Re: Investing the stash how much market timing is MMM?
« Reply #37 on: October 29, 2013, 05:18:13 PM »
Interesting how it's now down to 19.5 after a 30% run up in price.

dmn

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Re: Investing the stash how much market timing is MMM?
« Reply #38 on: October 29, 2013, 07:14:18 PM »

According to Common Sense on Mutual Funds, index funds will beat out mutual funds 80% of the time, year after year. The idea of actively choosing 40 or so blue chips is similar to choosing a mutual fund of the same blue chips. By the time you figure in transaction costs you're already behind. With an index fund, you can get 0 transaction costs and very low expense ratios.

I am not sure about the expense ratios in the US, but in Europe, expense ratios are usually around 0.2% to 0.5%. If I buy and hold a selection of stocks myself, I pay a one-time brokerage fee of ~0.5%, which means I break even after 1-3 years and permanently save on the expense ratio. As my stock picks should give market performance on average, I expect to come out ahead with this approach.

Mutual funds are suboptimal due to management fees and trading-related transaction costs, but those problems do not apply to do-it-yourself buy and hold. Of course one needs proper diversification. Whenever I buy new stocks, I force myself to buy companies from sectors in which my portfolio is currently underweight in the hope to get index-like performance.

(As a side benefit, I am more protected against tail risks - index funds tend to reduce their costs by using swaps or lending shares to institutional investors, which introduces a small counterparty risk.)

destron

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Re: Investing the stash how much market timing is MMM?
« Reply #39 on: October 29, 2013, 07:33:17 PM »
> The key is to make sure the dividends are being automatically re-invested for free.

I don't really agree with this statement although it is a fine strategy. There are two reasons (that I know of) why you may not want to automatically re-invest dividends.

1. It can screw up a tax harvest. You can tax harvest after losing money on a fund / stock, but it ruin your opportunity if the dividend pays right before you intend to harvest: http://www.bogleheads.org/wiki/Tax_loss_harvesting

2. If you rebalance your portfolio, it is better to use the dividends (which you must pay capital gains on anyway) rather than sell one stock to rebalance the other. 

destron

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Re: Investing the stash how much market timing is MMM?
« Reply #40 on: October 29, 2013, 07:38:17 PM »
Ok, to throw another wrench in the works, what do you MMM forum readers think of this article:

http://money.cnn.com/2011/01/25/pf/expert/investing_roth_ira.moneymag/index.htm

I totally agree with it -- reason being, I have already read that analysis has shown it is, on average, better to invest earlier than to dollar cost average.

I still dollar cost average because I am still working and can only invest money as I earn it.