“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
A key lesson we can learn from Warren Buffett, is about how to think about a potential stock investment in the context of a long-term time horizon. Every investor in a stock has a choice: bite our fingernails over the short-term ups and downs that are inevitable with the stock market, or, zero in on stocks we are comfortable to simply buy and hold for the long haul — maybe even a five year holding period. Heck, investors can even choose to completely ignore the stock market’s short-run quotations and instead go into their initial investment planning to hold on for years and years regardless of the fluctuations in price that might occur next.
Today, we examine what would have happened over a five year holding period, had you decided back in 2016 to buy shares of Ameriprise Financial Inc (NYSE: AMP) and simply hold through to today.
|Average annual return:||26.10%|
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 26.10%. This would have turned a $10K investment made 5 years ago into $31,884.19 today (as of 07/06/2021). On a total return basis, that’s a result of 218.90% (something to think about: how might AMP 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 AMP’s total return these past 5 years has been the payment by Ameriprise Financial Inc of $18.34/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 4.52/share, we calculate that AMP has a current yield of approximately 1.83%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.52 against the original $88.08/share purchase price. This works out to a yield on cost of 2.08%.
Here’s one more great investment quote before you go:
“The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase.” — Benjamin Graham