Categories

Personal Finance Retirement Planning

Tools

  • Economy & Politics
  • Investing
  • Personal Finance
  • Related Posts


    What To Expect On Your First Trip To Cuba
    What You Need To Know About Your Financial Advisor
    Is It A Good Idea For Teens To Open A Roth IRA?
    Depreciation Tax Extenders Big Bonus For Business Owners
    How Much Investment Money Can You Take Out In Retirement
    Retirement: Five Ways To Make The Most Of 2015
    Medicare Myths And Mistakes
    10 Questions To Ask A Financial Advisor
    The Most Important Question To Ask Your Financial Advisor
    Planning Your Long-Term Care Strategy? Five Things Every Woman Should Know
    Retirement: Seven Goals For The End Of The Year
    Generate An Eight Percent Yield Using This Strategy
    The Great Generic Drug Rip-Off
    Obamacare Is Only Human
    How The U.S. Government’s Tiny Statistical Error Is Distorting The True Cost Of College


    The No. 1 Way To Manage Your Retirement Account

    Some people will tell you it’s great to buy stocks when the market makes a new high.

    Some people will tell you to be cautious when the market makes a new high.

    Some people will tell you it’s great to buy stocks when the market hits a new low.

    And some people will tell you not to bet against the trend.

    For people who trade the market, I’m sure some of these ideas are useful. But if you’re an investor looking to compound your wealth for years (like in your individual retirement account), there’s an unconventional, very profitable and worry-free approach to "the market" and its highs and lows.

    This approach means you can stop worrying about the market and start making money.

    You can use all sorts of indicators to try to forecast market movements. But in the end, no one actually knows where the market will go.

    If you’re looking to put serious money to work over the long term, you’re much better off trying to find cash-gushing businesses with big competitive advantages and rock-solid balance sheets, run by managements that know how to allocate capital effectively.

    If you can find one that consistently pays out a little in dividends and reinvests most of its cash flow at high rates of return for many years, you can build a fortune no matter what the market does.

    For at least 95 percent of the investors out there, this approach delivers much greater profits — and much less stress. And it works in any market.

    For example, in early 2009, I urged readers to buy shares of Intel (INTC.) At the time, I pointed out that Intel was the "World Dominator" of semiconductors. I pointed out how Intel consistently generated high returns on equity, consistently raised its dividend and sported an incredibly strong balance sheet.

    At the time, the market was in turbulence. Everything in America was up for sale at "panic liquidation" prices. Investors were scared. Most were bearish on stocks and expected shares to continue to decline. But what "the market" was doing wasn’t a concern. We were concerned about buying a great business for a good price. Valued as a World Dominator, at 25 to 30 times earnings, Intel was worth $23 to $28 per share in 2009. But when we bought, it was trading for less than $16 per share.

    We’re up 70 percent on the stock, and we are earning 5.9 percent in dividends on our original purchase price. We own one of the world’s best businesses, and we’ll probably never sell the stock.

    Now consider another recommendation, Johnson & Johnson.

    Johnson & Johnson (JNJ) is the World Dominator of consumer products, like toothpaste, headache pills, mouthwash and bandages. Like Intel, it consistently generates high returns on equity, consistently raises its dividends and sports an incredibly strong balance sheet.

    When we bought Johnson & Johnson, the broad market was near a yearly high and up 70 percent from its 2009 low. But I couldn’t have cared less about those numbers. I was just looking to buy a world-class business for a good price. At the time, we could buy Johnson & Johnson for less than 10 times free cash flow.

    We’re up 60 percent so far, and we are earning 4.3 percent in dividends on our original purchase price. We own one of the world’s best businesses, and we’ll probably never sell the stock.

    What we all want is an investment that increases in value every year, regardless of the stock market’s action. If you had that, you could invest money regularly, perhaps each month, confident the value of your investment would grow enough to outpace inflation and keep your money safe from loss.

    With that kind of confidence, a person with a regular income can sock away a little money every year, no matter what the economy or the market is doing.

    Fortunately, there’s a simple, easy-to-understand secret that unravels the mystery of investing and removes the headaches created by the market’s ups and downs. It comes down to buying great businesses for good prices.

    Once a long-term investor realizes how futile it is to try to predict the stock market’s direction and resolves to simply buy and hold great businesses for the long term, that investor takes a major step forward.

    Those businesses are called World Dominators in my book. They grow their value (and often their dividend payments) every year. And when you buy them at the right price, it doesn’t matter what the stock market does from month to month.

    It only matters that you hold the business and let it build wealth for you, worry-free.

    Good investing,

    — Dan Ferris

    This article originally appeared on Wednesday, July 24 at DailyWealth.com.

    Dan Ferris is the editor of The 12% Letter, an income-focused research advisory which looks for the market's best dividend-growth stocks. He is also the editor of Extreme Value, a monthly investment advisory which focuses on the safest stocks in the market: great businesses trading at steep discounts. As a result of his work in Extreme Value and The 12% Letter, Dan has been featured several times in Barron's, the Value Investing Letter, and numerous financial radio programs around the country.

    | All posts from Dan Ferris

    Discuss this Story:

    Comment Policy: We encourage open discussion. Comments including racist statements, profanity, name calling or spam will be removed at our discretion. We use filters for spam protection. If your comment does not appear it is likely because it violates the policy.

    Charity Tax Breaks Extended Through 2014 Only
    Treasury Finalizes Rules For New Retirement Savings Account, myRA
    Home-Buying Guide: Seven Signs Of A Neighborhood On The Rise
    U.S. Mortgage Applications Fall In Latest Week
    Dodge The Debt: Finding Income In America Today
    Why 2015 Is The Year For Longevity Annuities
    Fire Up Your Body’s Own ‘Fountain Of Youth’
    Housing Permits Tumble Most Since January, Starts Miss
    20 Really Stupid Things In The U.S. Tax Code
    New Obamacare Tax This Filing Season: Your Shared Responsibility
    How To Divvy Up Your Money In A 401(k) Plan
    The Marshmallow Test: Four Science-Supported Tips For Saving For Retirement
    10 Things You Should Know Before Buying A Gift Card
    U.S. Housing Starts, Permits Fall; Trend Points To Recovery
    Seven Dumb Things People Do In The Name Of Being Frugal
    Five Dangerous Myths About Insurance
    Five Reasons Housing May Be Headed For Trouble
    Why Are Closing Costs Such A Big Deal?
    The Million-Dollar Income Stream
    How Your Social Security Benefits Are Taxed
    Affordable Places To Escape During The Holidays
    Last-Minute Strategies For RMDs From Your Retirement Accounts
    Six Ways To Safely Spend More In Retirement
    A Modest Proposal To Fix Obamacare: “Change The Name”
    Deadlines For Retirement-Plan Contributions In 2014
    14 Retailers With Generous Return Policies
    Seven Smart Ways To Lower Your Taxable Income
    Student Debt Relief Company Shut Down
    Best Travel Apps For 2015
    This One Smart Habit Can Slash Your Airfare
    Read more from Personal Finance...

    Liberty Investor Digest

    Get today's most important
    financial headlines all in
    one place by email!



    Sources


    close[X]

    Sign Up For Liberty Investor Digest™!

    Get Liberty Investor Digest FREE By Email!

    Input your name and email address in the fields below and get today's most important financial headlines sent straight to you inbox!

    Privacy PolicyYou can opt-out at any time. We protect your information like a mother hen. We will not sell or rent your email address to anyone for any reason.