
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a ten year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Travelers Companies Inc (NYSE: TRV) back in 2015: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full ten year investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.
Start date: | 01/22/2015 |
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End date: | 01/21/2025 | ||||
Start price/share: | $108.17 | ||||
End price/share: | $239.16 | ||||
Starting shares: | 92.45 | ||||
Ending shares: | 115.93 | ||||
Dividends reinvested/share: | $32.70 | ||||
Total return: | 177.27% | ||||
Average annual return: | 10.73% | ||||
Starting investment: | $10,000.00 | ||||
Ending investment: | $27,726.53 |
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 10.73%. This would have turned a $10K investment made 10 years ago into $27,726.53 today (as of 01/21/2025). On a total return basis, that’s a result of 177.27% (something to think about: how might TRV shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Travelers Companies Inc paid investors a total of $32.70/share in dividends over the 10 holding period, marking a second component of the total return beyond share price change alone. Much like watering a tree, reinvesting dividends can help an investment to grow over time — for the above calculations we assume dividend reinvestment (and for this exercise the closing price on ex-date is used for the reinvestment of a given dividend).
Based upon the most recent annualized dividend rate of 4.2/share, we calculate that TRV has a current yield of approximately 1.76%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.2 against the original $108.17/share purchase price. This works out to a yield on cost of 1.63%.
One more piece of investment wisdom to leave you with:
“Money is better than poverty, if only for financial reasons.” — Woody Allen