Look, I don't want to downplay what's happening right now. I'm as mad about the way the government is handling this credit mess as anyone. I hate the fact that savers and investors are seeing lower and lower returns on their investments while greedy real estate speculators and financial bigwigs are getting bailed out at the taxpayer's expense.
However, I also like to keep things in perspective. So depsite the stock market's crazy gyrations, I'm just not that worried. I continue to suggest buying and holding stocks, particularly those that pay dividends.
In fact, I think dividend investors, especially those of you participating in DRIPs and other dollar-cost averaging strategies, should feel just fine right now.
Consider this study that I originally did for my book, The Standard and Poor's Guide for the New Investor...
Assume for a moment that it was possible to buy an index fund of the Dow back in the 1930s. And pretend that you began investing $100 into that index fund every month, starting on October 31, 1929. You continue this strategy for the next decade.
Well, at the end of 10 years, the Dow is DOWN 46%. That's one of the worst periods for stocks you can possibly imagine. However, over the same time, your overall investment is actually UP 5%!
How can that be? Because you were buying equal dollar amounts throughout the turmoil. And that means you were getting more of the index when it was low, and less when it was high. You were making friends with the volatility!
So, sit back and relax. Keep saving and investing. Plow your dividends into more shares. And see how far ahead you are ten years from now!
Posted by: Teddy on Thursday, April 10, 2008
Hi Nilus, I see...it's sort of like when I had a couple grand tied up in Mutual funds, mostly partial shares in tech stocks back in 1999 when tech stocks were hot due to start-ups. My broker kept telling me to keep dumping money into this no matter what, the market always comes back. So, are you saying that I should keep investing and don't sweat it so much because the market will come back and think long term investing? Thanks Nilus. Teddy2x
Posted by: Sarah Rivers on Tuesday, May 20, 2008
Hi Nilus--Long-time Weiss subscriber. Re your new Dividend Superstars promo (deadline 5/30): you say MLP's shouldn't be used in an IRA, what about a Roth IRA? Not a tax-deferred account, a never-taxed account after 5 years and age 60 is what I was told. Could you answer this, please? Thank you, Ardent Weiss & Edelson fan
Posted by: Nilus Mattive on Thursday, May 22, 2008
Hi. You're correct that the difference between a regular IRA and a Roth IRA is deferred taxes and no taxes, respectively. However, when it comes to MLPs, you can end up owing taxes immediately no matter what type of IRA they're in. Reason: Almost all of the taxable income from MLPs is considered unrelated business taxable income (UBTI). Once your UBTI hits $1000 or more, it is taxed no matter where you're holding the MLP units. Now, you would have to have a decent stake to hit $1000 a year, but the bottom line is that it's simpler and probably more beneficial to hold MLPs in regular taxable accounts. I'm all for socking away as much money as possible in IRAs, but save those accounts for less tax efficient stuff like mutual funds, bonds, etc.