One of my favorite sayings is “the perfect is the enemy of the good.” The point behind that statement is that, if you are way too focused on trying to perfect everything, you won’t be able to put together anything good because you’ll find yourself waiting for some sort of “perfect” that will never come. That attitude is what got me going with the blog this week. I had done some computer repair work as a teenager and taken a computer programming class during my junior year at Washington & Lee, but beyond that, I didn’t (err, don’t) know anything about website construction. A lot of blogs out there have good layouts and are easy on the eyes, and I knew that if I waited for a perfect blog set-up, I would never get anything written. While this website is currently just a twinkle in my eye of what I want it to be, I knew I had to suck it up, say “screw perfection”, and start writing. I’m going for the “build it and they will come” approach as opposed to the “get all the ducks lined up in a row” approach that either: (1) wouldn’t have this website exist until late this summer, or (2) not have this website exist at all.
While most of my writings have matured from having a “beginner” target audience to that of the “intermediate investor”, I do still get regular e-mails from different people that are not sure how to get the process started. There are a lot of reasons why someone can get paralyzed into inaction, but my guess is that a lot of it has to do with the “grass is always greener” syndrome that causes investors to think that they always need to do a little more research to find the right investment. It is easy to second guess yourself when you think there is a better much mutual, more strategic index fund, and super “magic bullet” stock right around the corner.
When it comes to getting started with investing, there are three things to keep in mind:
(1) Keep expenses to a minimum. This should be a no-brainer, but DRIP plans are filled with companies that charge $2-$4 for each transaction and have a $50 monthly contribution minimum. That is a 4-8% service charge. Heck, I write for a target audience that has 8% baseline expectations for their total investment returns! My rule of thumb is to keep your investments to 1% or below, but with dozens of companies at www.computershare.com offering you the chance to invest for a $0 service charge, you ought to be able to eliminate any fees without breaking a sweat.
(2) Remember that “the perfect is the enemy of the good.” There is always a better mutual fund, index fund, or stock out there. The question is: Can you find a high-quality company that you can contribute money towards every month with the reasonable assurance that the company will be generating profits 10, 20, 30+ years from now. A lot of people think it is naïve to think about “making forever investments” in stocks that you can own for decades on end and eventually pass to your heirs, but I think that should should be the starting point for making a long-term investment.
After all, a crazy amount of success in life can be found by first determining the outcome you do not want, and then structuring your life so that you can avoid that outcome. My idea of dividend hell would be to spend years accumulating shares of a certain company, reinvesting the dividends, and then seeing that company fall apart. That is what happened to Wachovia shareholders during the financial crisis, when a lack of liquidity brought the banking giant with $40 in book value to its knees.
Luckily, beginning investors have some zero-cost starting points. They can invest in an oil giant like Exxon. If you go to computershare.com, you will see that you can buy shares of the oil giant every month at no cost. Exxon makes about $35 billion in profit across 48 countries, buy back 1.25% of its total stock every ninety days, is more influential than the US embassy in certain oil-rich countries, and proven reserves that cross the $100 billion mark. It’s hard to screw up investing in a company like that for the long-term.
Another company that has a “free” investing program if you are looking to have money taken out of your checking account every month is Procter & Gamble. If you visit pg.com/investor , you will see that you can have $50 taken out of your checking account to buy stock in the consumer giant every month. Considering that 398 out of 400 American households have bought a Procter & Gamble product within the past year, and considering that Procter & Gamble has the kind of stable business model in place that has allowed the company to raise dividends every single year for over half a century, this is another long-term investment that is hard to screw up.
(3) Pay Yourself First. One technique that Charlie Munger used when he was first beginning as a lawyer was the “pay yourself first” method, although in his case, he paid himself in terms of time. Every day, he would show up to his law office an hour early, and spend that hour reading and educating himself on finance before he began his work. This kind of habit gave Munger the ability to acquire the knowledge to become a superinvestor and eventually become Warren Buffett’s accomplice at Berkshire Hathaway.
Applying this to DRIP investing, I read a statistic that claimed over 70% of Americans live paycheck to paycheck. It’s hard to put an investment program together when there is no money left over at the end of the money. Although it varies somewhat, most companies at computershare.com have money taken out of checking accounts on the 1st and 15th of the month. This corresponds to when most Americans receive their paychecks. It can make a lot of sense to have $50 put into Exxon and $50 put into Procter & Gamble each month, because that money can be put to productive use without you hardly noticing.
As of this writing, Procter & Gamble has a 3.13% dividend yield. Each month that you take $50 out of your checking account and have it put into Procter & Gamble, you are buying yourself $1.56 in passive income. And here is the best part. That passive money isn’t static. Procter & Gamble has this nice little habit of increasing its dividend every 7-10% each year, and as long as people keep buying Tide and Iams and Covergirl and Gillette, you should see your income grow like clockwork with each passing year.
There is always a better, more optimal way to do something. Nothing is wrong with trying to improve and pursue perfection. But there is a problem if you let the pursuit of perfection stop you from taking intelligent action. We live in a world where excellent blue-chip companies can be bought automatically each month at absolutely no charge. It doesn’t get much better than that. Get the ball rolling with $100-$200 investments each month, and while you are executing that program, you can start looking for better investments that could potentially be worthy of your investing dollars. The important thing is to do something now. Don’t let the pursuit of perfection stop you from doing something good.