Published August 9th, 2015
You will see the words ‘long-run’ or ‘long-term’ often on Sure Dividend.
It’s no secret, the Sure Dividend system advocates buying and holding for long periods of time.
But, how long is ‘a long time’?
The average life expectancy in the United States is 78.8 years according to the Center for Disease Control. The image below shows how life expectancy has slowly increased in the United States.
Most people don’t start investing when they are born… If you started investing at 21, the average person has a full investment lifetime of about 58 years. Fifty eight years is a long time.
One dollar invested for 58 years at 9% return a year is worth $148 dollars 58 years later. Turning $1 into $148 is not a miracle… It just takes a long time.
I believe that investing is not strictly about creating wealth for yourself. Humans are not squirrels – taking nuts now and hiding them for the future. No; we can do better.
You can extend your time horizon from decades – to indefinitely by thinking outside yourself.
For most people, this means thinking about their children or grandchildren.
Here is some very interesting math that shows the practical use of the power of compounding:
Imagine you invest $10,000 for your child or grandchild when they are born. If this money compounds at 9% a year, by the time your child or grandchild is 65 they will have a cool $2.7 million in the bank (or rather, investment account).
Interestingly, this is a little more than the amount needed to very comfortably live off dividends without ever having to touch the principle. This means, that $10,000 you set aside so long ago – will continue to compound for generations. Your child or grandchild can pass it to their children, and so on.
Not everyone has made the choice to have children. The image below shows how the fertility rate has declined substantially in the United States since 1960.
If you don’t have children, can ‘long-term’ still be stretched to ‘indefinite’?
The answer is, yes.
Benjamin Franklin set up trusts for the cities of Boston & Philadelphia. He put the equivalent of around $125,000 (in today’s dollars) into each trust with a few stipulations. First, no money could be withdrawn for 100 years. Secondly, only a portion could be withdrawn at the 100 year mark. The total amount of funds could not be withdrawn for an additional 100 years. Philadelphia used the money to provide scholarships for local high school students. Boston used the money (which had grown to $5 million – Franklin had apparently invested in interest bearing accounts, not stocks) to create the Benjamin Franklin Institute of Technology.
This goes to show – if you don’t have children or grandchildren, but you have causes your care about, passing wealth on for future generations to enjoy magnifies the contribution of your current money.
When investing for long periods of time, it is important to find high quality businesses in which to invest that will stand the test of time. I believe high quality dividend growth stocks, Dividend Kings, and Dividend Aristocrats make the best investments for the long run.
This is not a religions website. Whatever your religion (or no religion at all), the verses from the bible below show how the importance of investing and compounding money has been known for thousands of years.
“Again, the Kingdom of Heaven can be illustrated by the story of a man going on a long trip. He called together his servants and entrusted his money to them while he was gone. 15 He gave five bags of silver[a] to one, two bags of silver to another, and one bag of silver to the last—dividing it in proportion to their abilities. He then left on his trip.
The servant who received the five bags of silver began to invest the money and earned five more. 17 The servant with two bags of silver also went to work and earned two more. 18 But the servant who received the one bag of silver dug a hole in the ground and hid the master’s money.
After a long time their master returned from his trip and called them to give an account of how they had used his money. 20 The servant to whom he had entrusted the five bags of silver came forward with five more and said, ‘Master, you gave me five bags of silver to invest, and I have earned five more.’
The master was full of praise. ‘Well done, my good and faithful servant. You have been faithful in handling this small amount, so now I will give you many more responsibilities. Let’s celebrate together![b]’
The servant who had received the two bags of silver came forward and said, ‘Master, you gave me two bags of silver to invest, and I have earned two more.’
The master said, ‘Well done, my good and faithful servant. You have been faithful in handling this small amount, so now I will give you many more responsibilities. Let’s celebrate together!’
Then the servant with the one bag of silver came and said, ‘Master, I knew you were a harsh man, harvesting crops you didn’t plant and gathering crops you didn’t cultivate. 25 I was afraid I would lose your money, so I hid it in the earth. Look, here is your money back.’
But the master replied, ‘You wicked and lazy servant! If you knew I harvested crops I didn’t plant and gathered crops I didn’t cultivate, 27 why didn’t you deposit my money in the bank? At least I could have gotten some interest on it.’