When to invest in the Stock Market

By Charles M. O'Melia

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’)? (One Mutual fund, just recently, was fined 450 million for ‘hidden fees’ practices.) ‘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.

There is an enormous amount of investor dollars supporting some whopper salaries on Wall Street. Just recently (the summer of 2003), Richard Grasso, the once former head (CEO) of the New York stock exchange was forced to resign, after his salary for the past 2 years were made public. His salary - 12 million a year for the past 2 years, a check for 48 million, which his advisor suggested he return (which he did) and a pay-package of 139.5 million dollars (which he hasn’t returned, as of this writing-mid-2004). Now, that is just one man’s salary on Wall Street and it is certainly good work if you can get it! Where did all this money for his salary come from? If the money didn’t come from investor’s dollars, why were Pension fund managers so outraged by Grasso’s salary that they threatened to pull billions of Pension fund dollars from the New York stock exchange? I really don’t know where the money came from to pay his salary. What I do know is the one place where the mo!

ney for his salary didn’t come from and that is from the Stockopoly investor. Not one cent!

It is my opinion that all stock purchases should be made without commission charges (which is possible). 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. Every cent you invest should work for your ROI. By purchasing those companies that have a long-term history of raising their dividend each year (for example, Comerica – 34 years, Proctor and Gamble – 47 years, BB&T – 31 years, GE – 28 years, Atmos Energy - 16 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

		   Share	          $1,000.00
       Stock price   Dividend Purchases     Share Purchases 		
March   $48.00    (52 cents a share) 1.083      20.83 shares
June      $46.00    (52 cents a share) 1.378      21.74 shares
Sept.     $44.00    (52 cents a share) 1.714      22.72 shares 
Dec.      $42.00    (52 cents a share) 2.098      23.81 shares
March   $40.00    (54 cents a share) 2.637      25.00 shares  
June      $38.00    (54 cents a share) 3.169        - 0 -
Sept.     $36.00    (54 cents a share) 3.393        - 0 -
Dec.      $38.00    (54 cents a share) 3.262        - 0 -
March   $40.00    (56 cents a share) 3.260        - 0 -
June      $42.00    (56 cents a share) 3.149        - 0 -
Sept.     $44.00    (56 cents a share) 3.045        - 0 -
Dec.      $48.00    (56 cents a share) 2.827        - 0 -
March   $50.00    (58 cents a share) 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 invested 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.

In the Stockopoly plan there are no commission charges, all stocks are purchased commission free. There is no need for a stockbroker (the tools needed for doing your own research are easily available and the where and how-to’s are included in the book); there are no hidden fees, load fees, operating, and management or advertising fees. There are no illegal trading practices, costing investors tens of million of dollars. (And the Wall Street Christmas bonuses will not be coming out of your pocket.) Every cent works for you in the form of increasing cash dividends every week, month and year. You’ll never pay too much for a stock, even if that stock is at a 52 week high. The WHEN you invest in the stock market is of little importance compared to knowing HOW to invest in the stock market, simply because the how over rules the when.

In the Stockopoly plan you will discover HOW to use all the tools necessary to develop a concrete, definite plan of investing that will profit you and your family for the rest of your lives.

For more information and excerpts from The Stockopoly Plan, please visit www.thestockopolyplan.com

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. Please provide a courtesy e-mail to: charles@thestockopolyplan.com telling where the article was published. Thanks!

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