Money Forum World

Dan Harding · Joined: 08 Nov 2007 Posts: 2232

Is purchasing all 30 Dow stocks a smart idea for a long position?
I am thinking about longing all stocks in the Dow. Most have a pretty good dividend. I'm planning on putting the Div back in and forgetting about it. I'm tired of trading and just looking for a good lasting investment. Say ten years. I could still check the average weekly and change one or two if I thought that one had the chance of really going down. I was thinking about purchasing all but three and exchanging the three I didnt like with better businesses in the sector. What do you all think?

Sybil Conner · Joined: 08 Nov 2007 Posts: 2158

Lets look at your math over a 30 year time horizon:

Assumptions:
$10k investment
$200 in commissions to purchase all 30 stocks
$200 in commissions to sell all 30 stocks
7% per year average increase in dow
0.20% Expense percentage for exchange traded fund
$7.00 to purchase ETF
$7.00 to sell ETF

Results:
Buy and hold 30 stocks: $74,400.10 after 30 years
Buy and hold ETF: $71,910.32 after 30 years

Break point:
If invested 14 years or fewer, the ETF wins
If invested 15 years or more, purchasing individually wins

However, think about that the ETF will keep your investment balanced, while purchasing and holding 30 stocks won't. as an example, if GE kicks butt and GM tanks, the ETF will rebalance proper. On the other hand, you'll be overinvested in GE and underinvested in GM.

Overall, I could go with the ETF. there's a good chance you'll want to change your mind and sell in under 15 years, and you get the auto rebalancing.

IYY is a decent dow jones tracking ETF.

&gt,Adam

James M · Joined: 08 Nov 2007 Posts: 2119

This is really pretty common practice. But before you go purchasing all those individual stocs, think about purchasing an index fund. Thats a mutual fund tied to the index DOW, NASDAQ, ETC. and they do all the leg work for you. Youd only pay one sales commission on that instead of 30.

Sasha Pennington · Joined: 08 Nov 2007 Posts: 2143

Sure, if you have 300K to invest in domestic big Cap as part of a mulit million dollar portfolio. Otherwise, the transaction costs for 30 individual stocks bought in comparatively small amounts could be enourmous. think about just purchasing DIA the closed end equivelent of the Dow, or for the courageous, DDM the Powershares super Dow 30, intended to go up or down twice as much as the Dow.

Big Inc. · Joined: 08 Nov 2007 Posts: 2120

no 1st you're spending way too much in fees five ten is a better fit ansd second you want to defeat the market not eumlate it.