Why Dollar-Cost Averaging Stinks

A few months ago, I stated that it’s a good idea to invest in the market in small bites over time, rather than diving in all at once. This method is called “dollar-cost averaging,” and it’s a popular strategy in personal finance circles.

But a widening body of evidence suggests that you should dive in headfirst instead of dipping your toes into the market.

The Background

Dollar-cost averaging supporters say that if you pour every dollar into the market at the same time, you might accidentally buy at the worst moment, when the price is peaking. If you buy stocks in small increments over time, though, you spread out your risk.

For example, a person with $5,000 who wants to invest in The XYZ Index Fund might:

Invest the entire $5,000 on Jan 1 at a rate of $50/share. This is called “lump-sum” investing.

- OR –

Invest $1000 on Jan 1 at $50/share
Invest $1000 on Feb 1 at $53/share
Invest $1000 on March 1 at $46/share
Invest $1000 on April 1 at $48/share
Invest $1000 on May 1 at $48/share

Average cost per share? $49 dollars. You’ll also own more shares. The same $1,000 will buy you more shares when prices are low and fewer when prices are high.

Conventional wisdom says that this strategy — easing into the market — is the best way to invest.

After I wrote about this a few months ago, one Afford Anything reader brought some research to my attention. The research he encouraged me to read makes a compelling case that dollar-cost averaging might NOT be the best practice.

Stock Portfolio May 2012

For Stock Portfolio May 2012, we have add in KMLOONG to our portfolio.

Kim Loong Resources Berhad, the Group together with its subsidiaries, engages in cultivating, processing, and marketing oil palm products in Malaysia. The company also involves in extracting residual oil from wet palm fibre and conversion of palm fibre; trading fresh fruit bunches; and manufacturing health supplements and food ingredients. In addition, it manufactures concrete culvert and bio fertilizers, as well as engages in bio gas and power generation activities. The Group operates in Malaysia.

Khazanah: MAS-AirAsia share swap is off

Its official now. Khazanah Nasional Bhd announced late this evening that the share swap deal between Malaysia Airlines
(MAS) and AirAsia Bhd has been called off.

"After eight months, our assessment is that, the cross-holding of
shares has become a distraction to management's efforts to turnaround MAS.

"The cross-holding of shares was well-intended to simply better align the economic interests on the part of the major shareholders of MAS (Khazanah) and AirAsia (Tune Air)," the government's investment arm said in a statement.

Having failed to get stakeholders' support for collaboration, Khazanah said the parties have agreed to unwind the cross-holding of shares and revert to the original structure of major shareholdings of both companies.

The unwinding of the share swap will see Khazanah transfer its 10 per cent or 277,650,600 ordinary shares in AirAsia back to Tune Air, which will transfer in turn, its 20.5 percent or 685,142,000 ordinary shares in MAS back to Khazanah.

This transaction will be conducted based on the same swap ratio of 2.05 based on the prices at the time the share swap was announced in August 2011.

MAS was then valued at RM1.60 per share and AirAsia at RM3.95. No cash will change hands, said the government investment arm.

Cigarette sales to see growth after 8 years?

In The Edge Financial Daily Today 2012

Wednesday, 02 May 2012 14:46

Shares in British American Tobacco (M) Bhd (BAT) have done quite well, giving shareholders gains totalling some 12%, including dividends, YTD. By comparison, the FBM KLCI was up by just about 3% over the same period.

Increased interest in the stock could be due, in part, to the prevailing cautious sentiment. Outlook for the broader market, at least in the near term, is somewhat ambivalent after taking into account uncertainties, both external and domestic. Piling into relatively defensive and high yielding stocks would make sense for the more risk averse investors in the current environment.

The tax reprieve for cigarette manufacturers last year was also a welcome surprise. After hiking duties in each of the previous eight years, the government kept taxes steady in October 2011, when it unveiled Budget 2012.

In the absence of a further price increase and tougher enforcement on minimum pricing, the three large cigarette manufacturers managed to claw back some market share in recent months.

Industry volume sales rose 7.7% in 1Q12 at the expense of demand for exceptionally cheap whites, whose share of the market nearly halved from its peak in 1Q11. The sale of illicit cigarettes also declined, from about 37.3% in 2Q11 to 34.8% in 4Q11. At this pace, we may well see marginal gains in total volume sales for the full year, for the first time since 2003. To be sure, there is still the risk of a tax hike going forward. But for now, the industry is looking to be in better shape.

3 Reasons You Must Invest In Dividend Stocks

As a dividend growth investor, I am frequently asked why I don’t invest in high growth stocks and, more importantly, why I believe investing for dividends is a more appropriate strategy.

In bear markets there are great buying opportunities for dividend growth stocks that are offering yields above their historical averages. Opportunities to buy great dividend growth stocks at above average yields is a great way to finance your retirement and increase the compounding effect of your future income from these stocks.

Here are the 3 most essential reasons that I prefer dividend investing: 

1.) Dividends offer investors fantastic flexibility

Dividends give you tremendous financial flexibility throughout your investing life. While you’ve got an income from working, you can reinvest those payments to speed the process of compounding your wealth. Once you’ve decided to retire, the cash thrown off by dividends spends just as well as any other source of money!

What is even better, a rising dividend payment can help you fight inflation by providing you more cash every single year.

2.) You can’t fake money in your pocket

Dividends also have the added bonus of being exceptionally difficult for companies to fake. After all, it’s difficult to convince lenders to loan money to a company if that company is going to turn around and hand it over to its shareholders.

As a result, to sustainably make and increase those dividends, the business needs to generate serious cash on both a regular and repeatable basis.

3.) Dividends are paid from the company’s cash flow

Perhaps most important, a company’s dividend payment comes from its operational success and not from the panic, hype, or analyst interpretations that influence its stock price. Throughout these rocky market periods, dividend payments allow us to make money even when the stock price moves lower.

Why Invest In Dividend Paying Stocks?

Quicker compounding.

Increased financial flexibility.

Cash in your pocket without selling.

A hedge against inflation.

An check on the company’s accounting.

Cash Flow in a down market.

With all of the benefits of dividends, it’s obvious why they can be an integral component of one’s portfolio.

From dividendmoney.com