Valuations have been crushed across the board in 2008, and many money managers that I know who have owned more speculative small cap companies, are looking at the stocks in the Dow Jones that are trading at historically low multiples and "trading up" in the quality of their companies. Do you have $10,000 in a few marginal small cap companies? Sell them all and buy DIA -- you might get a safer ride if the market continues to fall, while preserving nearly all of the upside.
During the last 12 months, DIA has paid about $3 of dividends. Based upon an $87 price, this is about a 3.4% yield and you still have all the upside -- remember a few months ago the Dow was at $135.
Examples of the well-known and respected companies in DIA include 3M Company (NYSE: MMM), Boeing Company (NYSE: BA), Johnson & Johnson (NYSE: JNJ), McDonald's Corp. (NYSE: MCD), and Wal-Mart Stores, Inc. (NYSE: WMT) among many other famous brands. These brands are consistent performers and even in times of economic crisis, will probably still draw huge numbers of customers to their products.
Why pay a large cap money manager to stock pick among the Dow Jones? DIA only charges 0.14% to own all the companies through this ETF whereas a traditional money manager would charge you much 1% - 2% to invest in the same companies, thus taking most of your dividend away in fees.
Below is a list of the top 10 holdings of the 30 companies in DIA.
5.48% 3M COMPANY
4.45% BOEING CO
6.36% CHEVRON CORP
6.32% EXXON MOBIL
7.92% INTL BUSINESS MACH
5.23% JOHNSON AND JOHNSON
4.94% MCDONALDS CP
5.5% PROCTER GAMBLE CO
4.68% UNITED TECH
4.76% WAL MART STORES
Mitch Tuchman founded MarketRiders, an investment website teaching individuals how to save on fees and be their own investment advisor using low cost ETFs and asset allocation.
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Reader Comments (Page 1 of 1)
1-27-2009 @ 9:04AM
Baxter said...
The problem with the notion of an "investment" website based on the flawed belief that saving on fees (as opposed to investment performance) is that ultimately, when you have to write an "investment" article you must end up uttering platitudes such as don't bet against America- buy this ETF... On December 18th, the date in which this blog told you to buy DIA, that ETF was worth $86.36 a share- today (just 36 days latter)DIA is trading at $81-having traded as low as $79.41 just two days after this blog told you to buy it at 86.36! Any investment advisor worth it's salt would have told you not to try to catch a falling knife by buying DIA then. You see, part of being a good financial advisor is advising AGAINST buying at a time when buying is a bad idea. While no fee is generated for giving that advise, ethical financial advisors do just that time an again. Conversely, when rational entry points manifest themselves, they will tell you to buy. Is it fool proof? No. But working with an ethical quality advisor is the way in which most money has been made throughout history. Investment success for the non-professional investor is most certainly not about saving a few dollars in advice but rather seeking professional advice from COMPETENT sources. Like with any other professional, investment advisors come in varying qualities. The fees charged by the good ones is worth their weight in gold and then some. It is OK to be your own financial advisor, lawyer or architect. But first make sure to become licensed... ps. Yes, I am an advisor. But I'm posting here without the slightest conflict of interest. You and I will never do business. Consider this my free advice.