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What are your opinions on owning only (dividend)stocks or only index funds or a combination of both? Which is the best approach in your opinion? My friend told me recently that stocks are a losing game and low cost index funds are a better investment. I personally think dividend stocks can be just as good, or maybe I should say I believe they are a fine investment, although i have not looked into index funds that much, so maybe i am wrong. Does your age range factor into the decision maybe? I'm in my mid 20s and have shares in three stocks: Apple, 3M, and Disney and I'm long on them. Thanks for the opinions.
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guileapp, Stocks are only a losing game if you don't have a strategy and a basic understanding of the market. Investing in and trading blue chip stocks can be very profitable, and if done properly a stock investor can beat the returns of many of the various index funds. An investor should have a 15-20 year time horizon.
M$$I
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Not too much wrong with holding some of both.
You have a nice start with AAPL, MMM and Dis, grab a few more nice core stocks and a few funds, be patient and let the time, monies,and holdings work for you.
1 thing I have learned and you will learn here, patience, patience, patience, Though I watch my accounts through the day, I dont let the ups and downs affect me, its a marathon not a sprint and you are extremely lucky and have time on your side and a ton of wisdom here.
As for friends telling you what to, or not to do in the market, or life in general, take it with a grain of salt. I was lambasted years ago for buying AAPL for myself and kids by some family members, we know how that turned out.
Looking back at my "investing" I can see my mistakes of buying a "breakout" stock, normally on someones recommendation.
Good luck to you and nice start.
Jim
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12-22-2014, 12:04 PM
(This post was last modified: 12-22-2014, 12:19 PM by KenBob.)
Index funds can be the best option for some people. If a person doesn't desire or is incapable of managing a stock portfolio, index funds are the best option. This is especially a consideration as we get elderly. I am currently putting all my wife's dividends into an index and will start putting mine into an index at retirement, since she will not want to manage the stock portfolio when I die.
An index should also be used by most people if the goal is capital gains (price increase). Repeated studies have shown that most people sell at the wrong times due to price variability. In addition, capital gains are almost impossible to predict.
Owning individual stocks can make sense for a dividend stock investor. Dividend investors focus on the income, so they are less likely to sell out at the wrong time. In addition, dividend index funds are notorious for having low yield. I am currently running a model index fund in parallel with my portfolio to evaluate index funds. My very preliminary conclusion is that overvalued stocks in the index pull down the yield, which can be avoided by the individual stock investor.
If you invest in individual stocks, buy quality (good credit rating), buy at a good valuation (i.e. a stock forward PE ratio less than the the market forward PE ratio), get a yield higher than the corporate bond rate minus inflation, get an earnings growth rate higher than inflation, and get a stock with a payout ratio less than 80%. Buy at least 20 stocks. Don't sell any stock unless the dividend is cut.
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KenBob, nice answer. I eschew funds & ETFs except for special situations (emerging markets, non-Euro or non-Canadian foreign equities, etc.) but I still have lots of companies I want to fill in my portfolio so I see no need to go there anyway. For anyone who doesn't have the time or inclination to research & monitor, they're a good way to go.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
A stock is a unit or say a small part of a company that can be dealt available on the market. When you own a stock, it is then most important to know that you are generally known as a shareholder or a stockholder. In real significance, it is a representation of the amount of a organization that you own. The advantage of having a stock in a organization is that whenever the organization earnings, you advantage as well. It also gives you the right to make choices that can impact the organization. Index funds and mutual funds have a lot in common. In both kinds of investments, the fund that you invest in represents a number of stocks selected for their high return value. You don't buy an individual stock, you buy a share of these stocks as a whole. Your investment sees returns depending on how well the whole group does.
