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An Investment Plan Helps You Stay The Course

Over the past week, we have seen some crazy turbulence in stock prices.

When I saw S&P 500 futures down by 5% on Election Day, I was not happy. However, I saw it as an opportunity to add to my portfolio. Given the rapid overnight turnaround in stocks by the morning however, I was not able to capitalize on the weakness.

I did absolutely nothing all week, other than to initiate a small position in a company called CVS Health Corp (NYSE:CVS) the day before. Other than that I didn’t panic on Election Day, and just held to my stocks.



As I have discussed before, I did not panic because I have an investment plan in place. My plan calls for maxing out my retirement accounts every two weeks (1) through my paycheck, and then investing anything that is left over in my taxable portfolios. My investment decisions are mostly driven by availability of fresh capital to put to work, and investment ideas to a certain extent.

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I do not believe that a decline in stock prices will affect the business model for the companies I am looking to buy for the long run. For example, I believe that a company like Altria Group Inc (NYSE:MO) should do fine in the long-run. The only requirement I would have is that it drops below $60/share, in order to add to a position there. Otherwise, holding on to it and enjoying the rising stream of earnings and dividends, strikes me as a logical thing to do. It is easy to ignore the stock price fluctuations of the manic depressive Mr Market, when I am paid 61 cents every quarter, for every share I own. If history is any guide, this payout will get higher over time.

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As a holder of a diversified portfolio of equities, I am paid to hold on to it with fresh dividends. Plus, I regularly receive dividend increases. Throughout this difficult week, I still had a business that rewarded me with a dividend raise. This was Automatic Data Processing (NASDAQ:ADP), which raised its dividend by 7.50% to 57 cents/share. This marked the 42nd Consecutive Year of Dividend Increases for this dividend champion. I saw this dividend hike as an indication that the business was doing fine, and that management was optimistic on ADP’s near term business prospects. I received this raise without having to lift a finger ( though I did have to do the hard work of discovering the company and investing in it since 2008).

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In general, I believe that stocks represent the best long-term investment opportunity for me to compound my capital and investment income. I believe in a strategy called buy and hold investing (2), which looks silly in a world where investors holding periods is in minutes, rather than decades. My stock strategy relies on steady improvement of earnings and dividends over the course of years. This growth in earnings will drive growth in dividends, and hopefully result in growth in stock values over time. The growth will be visible decades down the road. Therefore, my stock holding period should essentially be in the decades.

As a result, it makes no sense to panic over short term market fluctuations.

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