Little-by-Little Investing
The key to success in life is not big bangs or quantum leaps or gains. A quantum leap is an abrupt change, a sudden increase, or a dramatic advance. Wise investors do not make abrupt changes or invest with the goal of making a lot of money in a day, a week, or even a year. There are many reasons for this, but one is that far too often hasty wealth is wasted. King Solomon said, “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.” Proverbs 13:11
The best way to climb a mountain and get safely to the top is by careful planning and then by using simple steps that gradually get you to the top. It is a marathon, not a sprint. The same is true of investing. Here are three ways that this can be applied to your investing decisions.
Little-by-Little Buying
There is a human tendency to think that today’s good deal is the best deal available. If the price of an ETF of stock dropped one percent today, then it is certainly a better deal today than it was yesterday. However, it may drop another one percent tomorrow or next Monday. What is a little-by-little investor’s thinking? What is this investor to do?
This investor may have a goal of having 100 shares of VYM or DGRO in their portfolio. A little-by-little investor does not buy all 100 shares today. Rather, they determine to buy 25 shares per month for the next four months on days when the stock market is down. The absolute best way to do this is to use a buy limit order. If shares of DGRO are currently trading at $50 per share, then I will put in an order to buy 25 shares at $49.50 per share. This is one percent less than the current price. Of course, I could enter my order to buy at $50 and be reasonably certain that I will get the shares. I could also enter a buy order for $49.25.
The goal of the little-by-little investor is to keep your total costs low. Of course, the price of the shares could rise to $51. This may mean that the buy order should be adjusted up from $49.50. However, this brings us to the second little-by-little principle: patience.
Little-by-Little Patience
Far too many investors are impatient. I recently wanted to add some shares to my ASRT holdings. ASRT is Assertio Holdings, Inc. The shares were trading at $7.65 before I left on vacation, so I entered a buy order for the shares at $7.15 per share. Assertio Holdings, Inc. is a commercial pharmaceutical company, and it provides medicines in the areas of neurology, rheumatology, and pain and inflammation. As I patiently waited, the share price did not drop to my price.
However, on May 16 the price did drop as Cindie and I drove from Fishers Indiana to Mount Clare West Virginia. The shares were added to my brokerage account. Since April 11, 2022, I have added shares at prices like $3.40, $2.21, $1.94, $3.80, and $5.90. As a result I now own 4,700 shares using little-by-little patience.
I have a cost basis of $17,342 for my shares, but they are now worth $34,310. In other words, by purchasing the shares little-by-little with patience, my shares are now worth almost twice what I paid for them. Obviously, this is an exception. Rarely do my investments double in value in one year.
One word of caution about ASRT: It does not pay a dividend. It is also a micro-cap stock and should be viewed as a higher risk investment. This leads me to the third little-by-little principle: dividend growth.
Little-by-Little Dividend Growth
The prudent investor buys quality dividend growth ETFs and stocks. Some of my favorite ETFs are DGRO, SCHD, and VYM. I buy them little-by-little with buy limit orders. I buy them and then I have patience. But then I watch the path of the dividend. It should be increasing. This is necessary because inflation and taxes are increasing. Even a five percent per year dividend increase is a valuable addition to your portfolio of investments. The reason is simple: this type of growth compounds. Wise investors understand compound growth.
If I have $1,000 in a savings account, and it pays me four percent per year, I will have at least $1,040 at the end of the year. However, if I continue to hold that investment, and it continues to offer a four percent yield, then I will receive more than $42 in interest in year two. In year three the interest will bring my balance to $1,125. Actually, it will be more than that if the interest is paid monthly.
A savings account is not the best choice. For example, DGRO has a 5 Year Dividend Growth Rate of 10.32%. Think about the power of the compounding dividends if you reinvest them using buy limit orders over the course of ten years.
Summary
There are other little-by-little strategies, but you should understand that there is a general thinking that I will invest using little-by-little tactics. I will also strive to keep my expenses low and focus on quality investments with a wise diversification approach.
Treasure Principle
Sadly, far too many seek treasure on earth that will only benefit them for 70-100 years, at most. There is another little principle that King Solomon recognized. It has to do with thinking with an eternal perspective. Jesus talked about this too. He said you should lay up treasure in heaven because that treasure won’t ever be lost.
“Better is a little with the fear of the Lord than great treasure and trouble with it.” Proverbs 15:16
All scripture passages are from the English Standard Version except as otherwise noted.
Know Your Flocks & Herds 