“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 ten 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 10 years to 2012, investors considering an investment into shares of Wells Fargo & Co (NYSE: WFC) may have been pondering this very question and thinking about their potential investment result over a full ten year time horizon. Here’s how that would have worked out.
|Average annual return:||7.09%|
As we can see, the ten year investment result worked out well, with an annualized rate of return of 7.09%. This would have turned a $10K investment made 10 years ago into $19,833.88 today (as of 04/20/2022). On a total return basis, that’s a result of 98.35% (something to think about: how might WFC shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Dividends are always an important investment factor to consider, and Wells Fargo & Co has paid $13.32/share in dividends to shareholders over the past 10 years we looked at above. Many an investor will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional shares of stock can be a great way for an investor to compound their returns. The above calculations are done with the assuption that dividends received over time are reinvested (the calcuations use the closing price on ex-date).
Based upon the most recent annualized dividend rate of 1/share, we calculate that WFC has a current yield of approximately 2.06%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $32.69/share purchase price. This works out to a yield on cost of 6.30%.
Another great investment quote to think about:
“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” — Peter Lynch