“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a five year holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 5 years to 2016, investors considering an investment into shares of Bank of America Corp (NYSE: BAC) may have been pondering this very question and thinking about their potential investment result over a full five year time horizon. Here’s how that would have worked out.
| Start date: | 04/18/2016 |
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| End date: | 04/15/2021 | ||||
| Start price/share: | $14.17 | ||||
| End price/share: | $38.74 | ||||
| Starting shares: | 705.72 | ||||
| Ending shares: | 779.46 | ||||
| Dividends reinvested/share: | $2.69 | ||||
| Total return: | 201.96% | ||||
| Average annual return: | 24.77% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $30,201.20 | ||||
As we can see, the five year investment result worked out exceptionally well, with an annualized rate of return of 24.77%. This would have turned a $10K investment made 5 years ago into $30,201.20 today (as of 04/15/2021). On a total return basis, that’s a result of 201.96% (something to think about: how might BAC shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price change, another component of BAC’s total return these past 5 years has been the payment by Bank of America Corp of $2.69/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of .72/share, we calculate that BAC has a current yield of approximately 1.86%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .72 against the original $14.17/share purchase price. This works out to a yield on cost of 13.13%.
Another great investment quote to think about:
“If I’ve learned one thing in this life it’s this: even if you lose, don’t lose the lesson.” — Daymond John
