University of Virginia Library

Investment Yields By Result

Financial Hints

By Richard M. Hirschfeld

Probably the most elementary-and
possibly the most effective-method
of amassing capital is dollar
averaging. This system is strictly
mechanical and it totally eliminates
the human factor. It means
purchasing the same dollar amount
of stock each year on a specific
date, regardless of the prevailing
market prices.

This method of stock purchase
automatically results in more
shares when prices are low and
thus tends to bring down average
costs. Here is how it works: if
one buys stock at $20, $30, and
$40 his average, price is $30 per share. But since he gets twice as
many shares at $20 as he does at
$40, his average cost is approximately
$27.75 per share.

Cash dividends are accumulated
and invested the following year
on the selected investment date.
All stock dividends are sold, and
the funds derived are added to the
investment kitty also.

This mechanical formula enables
the investor to ignore all investment
opinions, including those
concerning growth potential,
market volatility, dividend yields,
and stock values. Thus, two of
the most formidable investment
problems are solved: 1) what to
buy; 2) when to buy it.

The results of dollar averaging
are nothing short of astounding.
The table below illustrates how
an annual investment of $1,000
over the past 22 years had grown
to almost $100,000 - nearly five
times the total capital outlay-as
of November 29, 1967. Needless
to say, this is indeed a nice retirement
fund, especially when one
considers that most investors never
get close to $100,000 in personal
equity.

These results are even more
startling than they appear at first
glance, since the stocks chosen for
this dollar averaging experiment
were selected almost haphazardly.
Moreover, according to Professors
Wilford J. J. Eiteman and Frank P.
Smith of the Bureau of Business
Research of the University of
Michigan, "the study has been
deliberately and consistently designed
to make the poorest showing
possible!"

Regardless of which Big Board
issues one chooses for his dollar
averaging portfolio, the stock
market takes good care of itself,
having risen an average of 4%
per year for the past six decades.
This is quite a record considering
this time period spans an international
economic collapse and
two world wars.

How is it all possible? The astonishing
results can hardly be attributed
to any factor other than
the intrinsic merits of common
stocks as long term investments.

22 YEARS OF DOLLAR COST AVERAGING
(Based on S & P Index of 500 Stocks)

                                                   

	INVESTMENT
	Jan. 15th			DIVIDENDS RECEIVED		SHARES Jan. 15th
	[1] Annual	Cumulative	Market Value	Annual	Cumulative	Held	Price
1946	$990	$090	$	$38	$38	53	18.36
1947	1,023	2,013	1,787	102	140	121	14.77
1948	1,068	3,081	2,842	178	318	191	14.88
1949	1,128	4,209	4,021	300	618	263	15.29
1950	1,209	5,418	5,584	491	1,109	334	16.72
1951	1,364	6,782	8,456	560	1,669	397	21.30
1952	1,391	8,173	10,923	640	2,309	454	24.06
1953	1,430	9,603	13,274	737	3,046	508	26.13
1954	1,473	11,076	14,368	870	3,916	565	25.43
1955	1,611	12,687	21,128	1,002	4,918	611	34.58
1956	1,835	14,522	28,779	1,134	6,052	652	44.14
1957	1,877	16,399	31,310	1,240	7,292	693	45.18
1958	1,997	18,396	30,374	1,297	8,589	741	40.99
1959	2,092	20,488	43,436	1,424	10,013	778	55.83
1960	2,067	22,555	47,463	1,558	11,598	813	58.38
1961	2,110	24,665	50,524	1,713	13,311	848	59.58
1962	2,245	26,910	61,134	1,874	15,185	880	69.47
1963	2,312	29,222	59,511	2,084	17,269	914	65.11
1964	2,547	31,769	72,501	2,365	19,634	946	76.64
1965	2,802	34,571	84,313	2,660	22,294	978	86.21
1966	3,035	37,606	94,435	2,899	25,193	1,010	93.50
1967	3,235	40,841	88,503	[2] 2,230	27,423	1,047	84.53
Nov. 29th	....	.....	98,910	....	.....	....	94.47