Question
I just started listening to your radio show. The information you provide is great, but a few weeks ago I heard Bil mention DCA. You’ve been so good at explaining PE and PEG. What is DCA? It sounds important, but I didn’t quite grasp the concept from the conversation you had.
Answer:
DCA is an acronym for “dollar cost averaging.” This is an investment strategy where you invest a fixed dollar amount per period. For example, instead of buying 100 shares of a stock, you buy $100 worth of shares. When the stock price is down, you receive more shares for your money. When the price is high, you receive fewer shares. In the long run, this should keep your price per share cost lower than average. This is similar to how you invest in your 401(k) at work. Each pay period a fixed percentage of your pay is invested in your account. We believe dollar cost averaging is a good long-term investment strategy.
Consider the best decade for the stock market, 1949—1958. If you had invested $10,000 in one lump sum, your total annualized return would have been 20.10%. If you had dollar cost averaged $1,000 over the course of the decade, your return would have been 19.20%. Now consider the worst decade for the stock market, 1929—1938. If you lump sum invested $10,000, your return would have been -0.92%, while dollar cost averaging would have yielded you a 7% return. In a bull market, dollar cost averaging should allow you to keep up with the market. In a bear market, dollar cost averaging should allow you to do better. Essentially, dollar cost averaging takes market timing off the table.
Question:
I just got a stock alert that Coach was an “actionable sell.” I know it’s been beat up a lot this past year, but I still like the company. I’m willing to stick it out. It’s a small percentage of my portfolio, and I don’t need to recognize a tax loss. Do I just ignore the hype?
Answer:
Coach Inc. (NYSE, COH) is a luxury retailer of accessories for men and women. The company is working through some fundamental issues. The stock has lost market share to its competitor, Michael Kors Holdings Ltd. (NYSE: KORS). Coach has recently hired a highly sought after creative director in hopes of turning around the line. Coach is cheaper currently, as it is trading for 13 times earnings, while Michael Kors is trading at nearly 34 times earnings. Coach has a 12% estimated growth rate and pays a 2.75% dividend. If you own Coach, we recommend holding it. If you are looking for a luxury retailer, you may want to consider buying Coach.
Question:
I’ve been looking for a small- mid-cap tech company, and I discovered Manhattan Associates, Inc. It doesn’t pay a dividend, but it’s still trying to compete with the big boys. What do you think of this pick?
Answer:
Manhattan Associates, Inc. (NASDAQ: MANH) is a developer of supply chain software solutions based in Atlanta. It is a well-run company, with 82% of its sales coming from the United States, but the company is expanding abroad. It has a diverse customer base, and is able to take market share from Oracle. The stock has a 17% estimated growth rate and has doubled in the last year. If you own Manhattan Associates, we recommend holding. If the stock is more than 3% of your portfolio, we recommend trimming it. We do not recommend buying it at this time, as it is expensive. It is trading for 33 times earnings.
Question:
After a few hard years struggling with unemployment during the recession, we finally have our budget under control. We have our six-months of emergency savings put away. We think we’re in good shape to begin investing again. We had to use my former 401(k) for living expenses during the recession. So we’re starting from square one. Can you give us some advice?
Answer:
Congratulations on coming this far. First, we recommend that you make sure your six months of emergency reserves are adequate for your family. You may want to increase your savings, if you have children or if you are caring for a parent. Next, we recommend that you take a look at your unsecured debt. You should pay off any credit cards that carry a high interest rate. Next you want to make the transition into saving for the long term. We recommend the first place to begin is your company-sponsored retirement plan, such as a 401(k). You should aim to contribute enough to receive the full employer match, if one is available. An employer match on your savings is free money that you do not want to pass up.
If you have excess to save, we then recommend saving to a Roth IRA, provided you fall within the income limitations. Contributions to a Roth are not tax-deductible, but qualified distributions are tax-free. After you contribute the maximum to a Roth IRA, if you still have money to invest, we recommend returning to save more to your 401(k) plan. Contributions to your 401(k) are pre-tax, so this should lower your taxable income.
At Henssler Financial we you should Live Ready, which includes understanding how to make the most of saving for your future. If you need assistance with your savings or investment plans you may contact or experts at 770-429-9166 or experts@henssler.com.
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
