Investing means one has positive expectations, at least potentially, about the future. No one who thinks things will get worse will bother to invest, at least in the long run.
The Purpose
The purpose of investing is to prepare for the future with what one has today. If you have seeds on hand, you do not save them to eat; you save them to plant. That is why saving is not enough, one must save and invest.
Since the purpose of investing is to prepare for the future with what one has today, it also means one is deferring some present gratification for future abundance. One uses some of today’s assets to prepare for the future. It is, in essence, a Less Now, More Later plan.
Investing does not require much else. Optimism is not a requirement of investing; one can be fearful and still invest; one can have a negative outlook and still invest. In fact, dividend investing before a market decline can be extremely beneficial. Of course, peace of mind is important too, so wallowing in fear is tragically wasteful.
But
It can be said that no one who thinks things will get worse will bother to invest. If one thinks things will get worse in the short run, but has a good opinion about longer term prospects, investing can prepare one for an eventual recovery. In buy-low-sell-high investing, one attempts to, well, buy low and sell high. It is another version of market timing. Determining when to sell is as important, if not more important, then knowing when to buy.
However, dividend investing has a different take. No one wants to overpay, so one’s initial investment price has great significance in any situation. But once one is invested, the dividends are usually reinvested, so the best course of action often is to just let the investment ride. Automatic dollar cost averaging is often a good course of action under many circumstances. When prices decline, it can be time to add more to one’s holdings. in fact, buying before a decline allows a dividend investor greater opportunities to increase their holdings than if they waited until the bottom.
For me, automatic dividend reinvestment is a key factor in increasing my assets. Once I set my stocks to dividend reinvestment, I can be assured that my share count increases without further work on my part. Sort of like permanent optimism.
How is your investing attitude? Let me know here.
The painting Sprit of the Air, 1860, by Robert Wilhelm Ekman, is said to have been inspired by The Kalevala, the epic poem of Finland. Courtesy of University of Toronto.
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