Investing in the Stock Market - When To!

Is really not as important as to how you invest in the stock market. And how you invest in the stock market should take into consideration what goals you are setting for that stock market investment.

For example, are you investing for capital appreciation or for income through dividend paying stocks? Or is the investment in the stock market for the combination of both capital appreciation and dividend income?

Are you investing through a Mutual fund(s) or selecting your own individual stocks?

Do you invest with a lump-sum dollar amount or dollar-cost average into your stock or Mutual fund positions (buying the same stock or Mutual fund at different prices over the years)?

Is your investment dollar spread too thin and are all of those dollars working for your ROI (return on investment)?

Do you pay commission fees to purchase a stock?

Do you pay load fees in your Mutual fund(s)? How much does your Mutual fund(s) charge you for management, operating and marketing fees (they are called 'hidden fees')?

'How' you invest in the stock market is more important than 'when' you invest in the stock market and 'how' you invest will determine your ROI.

When you invest in the stock market is after you devise a how-to plan that takes into consideration all of the factors above. Quite frankly, every cent of your investor dollar should benefit you and your family and no one else.

It is my opinion that all stock purchases should be made without commission fees (which is possible). That the investment in all stocks should be a long-term investment, and that every stock purchased should have a history of raising their dividend every year. And all dividends should be reinvested back into the company's shares (also commission free), until retirement.

By purchasing those companies that have a long-term history of raising their dividend each year (for example, Comerica ? 35 years, Proctor and Gamble ? 47 years, BB&T ? 32 years, GE ? 28 years, Atmos Energy - 17 years (they also provide a 3% discount on all shares purchased through dividend reinvestments), the 'HOW' you invest becomes automatic- you dollar-cost average into your holdings through the dividends provided by the companies every quarter.

The dividend is the one factor a company cannot 'fudge'. The money has to be there to pay the shareholder. If a company can raise their dividend every year, the company MUST be doing something right! When a company has a long history of raising their dividend every year you in a sense eliminate risk, since a lower stock price for that company just means a higher dividend yield. If, for example, a stock purchased at $50.00 a share drops to $36.00 a share, the income provided by the dividend income accelerates, and your dividend reinvestment provides you a better dividend 'bang for your buck'.

There have been many up and downs in the stock market these past 47 years (I know, I've been in almost 40 of them) ? yet Proctor and Gamble has never failed to raise their dividend during those past 47 years.

Below is an example of two types of investors that have $10,000 to invest in the stock market. One is a lump-sum investor, the other a dollar-cost averaging investor. One investor doesn't care about dividends, the dollar-cost averaging investor does.

Each investor took a different 'HOW' to invest and both investors had the same 'WHEN' when they invested. Let's say they invested at the same time, each stock purchased at $50 dollars a share and every quarter the stock dropped $2.00 a share, till the stocks hit a bottom of $36.00, and then recovers back to $50.00.

The lump-sum investor bought the fictitious company ABC, which does not pay a dividend, and the dollar-cost averaging investor purchased the fictitious company XYZ, which pays a quarterly dividend of 50 cents a share (a 4.0% yearly dividend yield), and the company had a history of raising their dividend every March for the past 41 consecutive years. Both purchases were made in January.

The lump sum investor bought 200 shares of ABC at $50.00 a share, watched the stock drop to $36.00, then recover back to $50.00 and when all was said and done ended up right where he started with 200 shares of ABC worth $10,000.

The dollar-cost averaging investor purchased 100 shares of XYZ in January for $5,000.00, (the stock paying a quarterly 50 cent a share dividend for a 4.0 percent yearly dividend yield), and purchased $1,000.00 worth of more shares every quarter for the next 5 quarters. Each quarter the dividend from the company was also reinvested into more shares of stock. Each March the company raised its dividend 2 cents a share, marking 45 consecutive years of rising dividends. All purchases were commission free.

January, 100 shares of XYZ @ 50.00 a share = $5,000

Date: Stock Price: Div. Purchases: Share Purchases:

March $48.00 @.52 = 1.083 $1,000 = 20.83 shares
June $46.00 @.52 = 1.378 $1,000 = 21.74 shares
Sept $44.00 @.52 = 1.714 $1,000 = 22.72 shares
Dec. $42.00 @.52 = 2.098 $1,000 = 23.81 shares
March $40.00 @.54 = 2.098 $1,000 = 25.00 shares
June $38.00 @.54 = 2.637 - 0 -
Sept $36.00 @.54 = 3.169 - 0 -
Dec. $38.00 @.54 = 3.393 - 0 -
March $40.00 @.56 = 3.260 - 0 -
June $42.00 @.56 = 3.194 - 0 -
Sept $44.00 @.56 = 3.045 - 0 -
Dec. $48.00 @.56 = 2.827 - 0 -
March $50.00 @.58 = 2.843 - 0 -

The dollar-cost averaging investor now owns 247.953 shares of XYZ. The value at $50.00 a share = $12,397.65.

So, the lump-sum investor ends up right where he started, 200 shares of ABC worth $10,000, and the dollar-cost averaging investor ends up owning 247.953 shares of XYZ worth $12,397.65, along with the dividend income generated from owning those shares. Both had the same 'when' when they invested.

The dividend yield at 58 cents a quarter (.58 divided by $50.00 x 4 x 100 =), a 4.64% yearly dividend yield. Every quarter every dividend received from the company was higher than the previous dividend, no matter what the stock price was at the end of the quarter.

The dollar-cost averaging investor is receiving a dividend for the next quarter from XYZ (no matter what the stock price happens to be) of .58 X 247.953 shares = $143.81, and the next quarter (and every quarter thereafter) the dividend would be even higher if the company, at least, maintained their dividend.

If XYZ repeated the same performance history ($50.00 down to $36.00, back up to $50.00) for the next 3 years, and ABC did the same - the HOW you invest in the stock market makes all the difference in the world.

---

You have permission to this article either electronically or in print as long as the author bylines are included, with a live link, and the article is not changed in any way, (typos excluded). Please provide a courtesy e-mail to: charles@thestockopolyplan.com telling where the article was published.

Charles M. O'Melia is an individual investor with almost 40 years of experience and passion for the stock market. Author of the book 'The Stockopoly Plan', published by American-Book Publishing. For more excerpts from The Stockopoly Plan, please visit http://www.thestockopolyplan.com

---

Eternal Sunshine

There is a current movie entitled "Eternal Sunshine of the... Read More

Market Success

Who are the successful investors?There are those who follow the... Read More

Shorting Stocks ? The Basics, Part II of II

After the publication of the first part of this two... Read More

Investing in Dividend Paying Stocks

I was recently interviewed for a press release through a... Read More

The Secret Art of Backtesting

If you have not back tested your trading system, you... Read More

How To Beat The Mutual Fund Companies At Their Own Game

You'd have had to be living on a desert island... Read More

Why the Majority Fail at Stock Investing

The gleam and bright lights of Wall Street lure in... Read More

Long-Term Investment In Todays Market?

The stock market is very unstable at this time going... Read More

Whos Calling?

Its dinnertime and the phone rings. It's Joe Noname with... Read More

Hedge Fund Advertising

Have you seen all those big full page ads for... Read More

Cash Is A Position

I go to the Money Show every year to visit... Read More

Duck

Duck! No I don't mean a quack, quack. I meant... Read More

Price to Earnings Ratio - P/E

After finding the price of a particular stock, usually the... Read More

Evaluation I

An insane person cannot evaluate an insane evaluation system.As you... Read More

Patterns

The Law of Chaos is the theory of random unpredictable... Read More

Oil Stocks As A Long Term Investment

The demand for world oil is increasing while world reserves... Read More

Rebalance And Diversify

The stock market has not been very kind to your... Read More

How We Eluded The Bear Of 2000

The date October 13, 2000 will forever be embedded in... Read More

Getting Even

I know there are a lot of you out there... Read More

How To Pick A Mutual Fund

Mutual funds by definition are a mixed bag of stocks,... Read More

Selection Vs Direction

As I have said many times before in this column... Read More

Dont Buy Stocks based on P/E Ratio alone

I use the P/E ratio as a secondary indicator for... Read More

Trading Stocks ?Never Forget About A Past Trade

We all know that emotions control every decision that an... Read More

The Next Bull Market

We are already in it, but you can't see it.... Read More

Dont Fight The Fed

One of the great truisms of Wall Street is "Don't... Read More

Jack and Jill

Jack and Jill went up the hill to fetch a... Read More

Complacency Indicator

If you haven't heard of the technical indicator with the... Read More

Why Buy and Hold?

Since I can remember, and that's a long time ago,... Read More

Commoditizing the world

Let's discuss commodities; with the latest Enron situation, it is... Read More

Frog In The Pot

You remember the story about the frog that was put... Read More

Market Timing

Every broker and financial planner will tell you that you... Read More

No Load Mutual Funds or Exchange Traded Funds (ETFs)?

If you are fed up with early redemption charges and... Read More

Overseas Investing: Going Against the Mainstream

TOO OFTEN, INVESTORS SIMPLY CHOOSE TO follow the crowd. This... Read More