February 24, 2017

The beauty of the dividends

If Dr. Hermann J. Stern looks at his portfolio from his first year of investment, he is pleased that he has already accumulated 2,894 Swiss francs in new cash. What was the cause for this joyous surprise? Very simple: dividends.

Dividends are often overlooked when they are issued. Look at the Japanese stock index and you will see that it’s at a lower level than twenty years ago. The fact that you receive dividends every year and can buy stocks at relatively cheap prices is often forgotten.

Often, people come to the conclusion that investing in stocks is a risk. However, they are wrong.

A better way of looking at stock investment is to simply compare what you originally paid into your portfolio and compare this with its value today. We can do this for any stock with a Google spreadsheet that shows the ranks of the individual shares.

Before Dr. Stern starts investing a new portfolio, he first looks at his old portfolios to see if there is anything else to be done there. This would be the case if stocks are suddenly very low or if diversification is no longer ensured because a stock has suddenly become more expensive.

In his first year’s portfolio, diversification is guaranteed. Regarding the ranks, most stocks are in the green sector. Only RWE has a very low value rank. Dr. Stern decides against selling because he wants to save money and saving money is about investing, not selling.

Should he invest his dividends of 2,894 francs? It may be too early for him because he just bought 5,000 francs’ worth of other shares. So, he will wait until more dividends have accumulated. Why create more work when it is not necessary? Stock investing doesn’t take a lot of time if you only do what you need.

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