Categories

Personal Finance Retirement Planning

Tools

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


    Short-term Health Insurance Plans Could Accelerate Obamacare’s Financial Problems
    Avoid Awkward Money Moments With These 10 Tips
    What I Learned When I Asked How Much My MRI Would Cost
    2015 Federal Income Tax Rates, Retirement Contribution Limits, Kiddie Tax, Gift Tax Exclusion And More
    IRS Announces 2015 Estate And Gift Tax Limits
    The Bernanke Mortgage Refinance Conundrum Is Not A Conundrum
    Your Student Loan Grace Period Expired: Now What?
    How To Start A Conversation About Estate Planning
    How To Divide An Inherited Account Evenly
    6 Steps To Bucketing Your Retirement
    2 Men Save Same But End Up $234,000 Apart
    Use 401(k) Before Social Security?
    7 Tough Money Topics You’re Not Discussing With Your Kids — But Should
    Congress Proposes Three Changes To Social Security That Make Sense
    Estate Planning Fears That Keeps Us Up At Night


    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.

    How To Fix Your 401(k) Before You Retire
    Obamacare Causing Insurance Premiums To Soar
    Is It About To Get Worse? Lakeland Hazmat Suit Orders Go Exponential, Surpass 1 Million
    There’s A 30% Chance Your Shrimp Isn’t What You Think It Is
    Retirement: Some Struggle With Leaving Jobs
    How To Save For A House In 10 Simple Steps
    The Five Scariest Retirement Planning Pitfalls
    How To Manage Stock Market Risk In Your Child’s 529 College Savings Plan
    Stay-at-Home Mom Facing Divorce? Don’t Expect Alimony
    Millennials Are Actually Investing In Retirement Options Early In Careers
    Spend Money, Save Your Sanity: 8 Everyday Tasks You Can Easily Outsource
    Ebola Discoverer Warns Deadly Virus Will Hit China
    Ebola Virus Is More Likely to Spread through Aerosols – and Survive Longer – When It’s Cold
    Case-Shiller: Home Price Gains Still Slowing
    Financial Wake Up Call For The DIY Crowd
    3 Financial Moves To Make Before Boosting Your Student Loan Payments
    Two Jobs, Two Retirement Plans
    5 Ways To Keep Your Health And Your Wealth In Retirement
    Salt Has A Salty History
    Tax Overreach May Be Driving Up Citizenship Renunciation
    And The Brand New Fastest Appreciating US City Is… (Hint: Not Cleveland)
    CDC Says Ebola Droplets Can Only Travel 3 Feet … But MIT Research Shows Sneezes Can Travel Up to 20 Feet
    A $12 Fitness Band? Yep. And It Looks Good
    Government’s Path Of Least Resistance For Would-be Homeowners
    Symptomatic 5-Year-Old Boy Tested For Ebola At Bellevue Hospital After Returning From West Africa
    The Love Affair With Obamacare
    What Is A Celebrity Loan Out Corporation?
    3 Retirement Goals People Never Achieve
    Asset Allocation For Retirement
    The 25 Best Places To Retire In 2014
    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.