Wouldn’t it be kind of nice to be able to invest without stress? Without worry? Without panic?
I’ll be the first to admit that market declines can sometimes raise the hairs on the back of my neck. Sort of like a natural disaster in my own neighborhood. Not particularly comforting. But I strive for calm.
Ways To Go
There is more than one way to invest. And no way is “better” or “worse” than another. What does matter is personal comfort. If I pick a method that is not suited to my temperament or to my personality, than I will feel discomfort and even if I make money, I will not be in a good place. So my goal as an investor, amoung all other things, is to know that how I invest is just as important as what I invest in.
Unfortunately, the way of the world is such that people seem to glom onto behaviors and attitudes that they pick up from others. (What a wonderful piece of slang: “glom onto”.) It seems to me that investing styles, like many things in life, are not things that people think about rationally, they just act in some particular manner because they see others behaving in that way. And once they find themselves doing some action, they justify it by rationalizing it.
So I advocate knowing why one does something. This method has been suggested by some others. For example, I note that Warren Buffett has recommended writing down why some particular stock is appealing before buying it.
For me, it is the method of investing that draws my attention.
The Many
Most people seem to buy stocks in the hope that the stock will go up, then expecting to sell to make a profit. In such a case, there are two points in time one must specify correctly: first when to buy, secondly, when to sell. Since there are two time points that are the major factors of this method, we can simply define it as a market timing approach. These “when” decisions also, by their actions, specify “at what price.”
Then there is the method of handing over one’s money to a financial advisor, whether an individual or a mutual fund (or ETF). This approach has the advantage of abdicating personal responsibility. But it then adds more risk: one must also find a trustworthy entity. And there is the matter of cost; all advisors will change a fee.
My personal method involves buying stocks in quality companies that pay dividends. Most high quality companies that have a history of paying increasing dividends will continue to do so. I easily partake of this growth. I add to my increasing income by allowing most dividends to be reinvested in the company. By reinvesting, my dividends buy more shares or parts of a share each quarter. So my holdings increase even if I do nothing but wait. In fact, waiting is the most important factor in this method of investing. As has been said many times: Time in the market beats timing the market.
Stress-Free?
I can say that the method I use, dividend investing, is significantly less stressful than various other methods. I sleep well at night. However, I would tell you nothing is stress-free. Especially when starting out, when we have few assets and little income, I would worry. However, the longer I am on this path, the less tense I have become.
What is your investing stress level? Let me know here.
Photograph of “Girl in Sámi costume” by Solveig Lund (1869–1943) was taken between 1985-1908. Courtesy Nasjonalbiblioteket (National Library of Norway).
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