End of Summer 2014
It is very exhausting traveling around the country making short stops to visit friends and family. We are constantly packing and unpacking. I don’t recommend this type of traveling. However, since we are between boats and we wanted to see a lot of family and friends, it is something we have to do this summer.
After spending 10 days in Rehoboth Bach, DE visiting some old and new friends in early August, we flew down to New Orleans, LA to visit with family. I have two new “great-nephews” born this past spring and summer.
From New Orleans we flew directly to Massachusetts to visit some other Bahamas friends, Russell and Carolyn, we know from our days staying on Great Guana Cay. Russell and Carolyn live in Salem, MS which is a really neat old town on the north shore of Massachusetts. Salem, MA’s claim to fame is the Salem Witch Trials held in 1692. Today there are many reminders of that infamous period in the city’s history. For example, we ate dinner one night at the “Witches Brew Pub.” Salem has a very large and well maintained historic district. However, when you leave the historic district, the houses are all mostly built in the 1800s, which most areas of the country would still consider “historic.” While in Massachusetts we visited several small towns on the north shore. It is truly a beautiful area of the country (well, in the summer that is).
Coast off Salem, MA
We are now back in Maryland relaxing with some family members. Dena has a couple of great nieces who are one and 3 years old. We are preparing for our 6 week trip to Italy. We depart on 10 September.
Over the next week we will drive back down to Florida to fly to Europe. Before we leave for Italy, we will visit a couple more friends and perhaps take a look at couple possible new boats.
Downtown Ipswich, MA
Retirement Planning Helpful Hint
I was speaking to my nephew this week about investing. Being young he is more focused on investing rather than retirement planning. But, of course, the two topics are related. My discussion with my nephew made me think of one of the most important concepts I learned that many young people (and many older people as well) either do not understand or appreciate the difference.
When it comes to investing, most people focus on the potential capital appreciation of an investment and ignore the income component (if any). I think this thinking is subconsciously related to the “get rich quick” mentally that many people have. If you buy 100 shares of Google (GOOG) for $500 (a total investment of $50,000), and GOOG, being a high growth stock, increases in price to $1,500 per share over a couple years, you now have $150,000. This $100,000 increase represents a 200% return on your original investment. Do this a few times and you are soon talking about some serious money.
On the other hand buying a boring stock like McDonalds (MCD) whose stock price may move upward (or downward) relatively slowly, is less exciting. However, MCD’s pays a 3.4% dividend. So a $50,000 investment in MCD today provides $1,700 in income per year. Most people think $1,700 is chump change compared to the potential gain in GOOG’s share price. But the difference is GOOG’s potential share price increase is not guaranteed and it is possible after you experience the large gain, the volatility of GOOG is such that the next year you could give back the entire gain. But the dividend cash payment from MCD is almost guaranteed and you get to keep the cash once received.
The mistake many people make when investing in stocks is they are constantly trying to hit a home run. They think no one gets rich on $1,700 income payments per year. But hitting home runs are hard to do even for professional investors. Many people try to find the next big hot stock. With rare exception these people end is wasting a lot of time and money trading in and out of stocks and end up getting nowhere (or worse losing a lot of money).
To continue with the baseball analogy, smart investing is about hitting a lot of singles (and maybe the occasional double). MCD is not a “get rich quick” stock. MCD is a “get rich slow” stock.
Let me explain.
If you had bought MCD in September 2004 you would have paid about $27 per share with a dividend payment over the next 12 months of $0.61 per share or about a 2.2% yield on the $27 share price at the time. If you held those shares until today (September 2014), MCD’s share price is about $94 with a 12-month dividend payment of $3.24 or a 3.4% yield on the current $94 share price. More importantly, MCD increased their dividend over the last 10 years at about a 20% annual rate. The current $3.24 annual dividend represents about a 12% annual return on your original investment of $27 per share.
MCDs stock during the last decade is an example of hitting a single (albeit a pretty good single). The dividend payments over the last decade were virtually guaranteed, but the share price was not. However there is a strong correlation between a rising dividend payment and a rising stock price. MCDs stock price almost tripled from 2004 to 2014. This price increase was not guaranteed but based on the increasing dividend payments; the stock price was very likely going to increase.
In my opinion this is how a stock market investor should be investing their risk based assets (i.e., their equity investments). It is OK to invest a little bit of money in growth companies like GOOG, but it should represent a very small portion of your overall financial assets like 5% or less. GOOG today may do a lot better than a stock like MCD, but maybe not. You are betting on capital appreciation. You should view volatile investments like GOOG, TWTR, and NFLX the same way you view gambling funds at a Los Vegas casino. Only invest what you can afford to lose.
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Very well put!