Few weeks back I read an interesting comment to an article on seeking alpha; Investor’s sole objective is to maximize capital appreciation (or returns) and in doing so follow a path of minimum risk. This is not a quote but essentially what it meant. I pondered over it and came to conclusion that comments section is not a place to divulge or express the target and goal. In essence, it does sound right.
So I talked to few other folks about their investing objectives and almost everybody had a similar thought process. Maximize your returns within minimum risk, devoid of any target or methodology. Even after few probing questions, it was clear to me the lack of a target. I even gave examples like, I have 100K to invest, now what should I do and how should I grow this capital. With few exceptions, the response I got was; do this for x% return; do that for xx% return; or wait for this opportunity and then invest to xxx% in three years, etc. I was pretty surprised by this.
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In last few weeks, I have looked at dividend stocks (aristocrats and achievers) that have dividend yields of less than 2%. There is a school of thought among dividend crowd that low dividend yields will take more than 10, 12, or even 15 years to match income from high yielding CDs or money market accounts. Furthermore, when low yield dividend stocks are compared to high yield dividend stocks, considering conservative dividend growth rates, low yielding stocks will often lag by significant amount. I agree that, mathematically, there is no argument for low yielding dividend stock providing lower income. Purely based on numbers, it is always good to go for relatively higher yield dividends stocks. In general, the cut off used by dividends investors vary such as 2% absolute dividend yield, 3% absolute dividend yield, or dividend yield higher than market (i.e. S&P500 yield).
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Portfolio Re-Balancing – Doing It Proactively
In my view, the process of re-balancing is an ongoing effort. It should be always be part of investor’s ongoing buy and sell decision making process. Depending upon your investment goals and risk profile, individuals should have a set of predetermined criteria which should guide them in making buy/sell decision. This way they are proactively managing their asset allocation. continue reading rest of the article….