I’m sure it’s just coincidence, but I’ve come across a lot of “When do you know you’re ready to retire?” articles the last little while. — EDIT: Just this morning, Robb at Boomer and Echo has written a post on this very topic. — After reading a few of these, it struck me that I had never really considered the question of when I would reach my (financial) retirement threshold. It’s not just because retirement is so far away, or because I haven’t taken the time to make a specific goal. The reason is because, as a dividend investor, the answer is so obvious that almost no thought is needed.
With the advent of the Internet, stock investing was suddenly democratized. In a very few short years, it became possible for “regular folk” to invest directly in the stock market. Individual investors were no longer obliged to trade through a stock broker. Mutual funds didn’t need to be bought through a bank. Fees and returns could be compared easily. Information about companies financial situations was available for anyone who took the time to visit a company’s website and spend the time reading the vast quantities of information posted there. All of this is great; more information is always better, right?
Well, no. Especially when you’re getting started. Too much information quickly becomes confusing, and very shortly thereafter, overwhelming.
Like anything else, too much information is a bad thing. (Caveat: This is true unless you’re a professional investor, or investing is your chosen hobby.)
When I was first considering investing in the stock market, one of the things that struck me was that some stocks seemed to chug along relatively steadily, while others rose and fell like some kind of Fear Factor Ultimate Challenge roller coaster ride. I was looking to make money, not lose sleep, so I was quite happy to forego the highs and lows of certain stocks for the steady-eddies that just kept on keeping on. As a happy coincidence, dividend stocks, which I was investigating at the time, are much more the former than the latter. As my stock research became more focused on the types of stocks that paid stead dividends, I ran across fewer and fewer high flyers. Still, I wondered, is there a way to quantify the volatility of a stock?
The answer is yes, and the number that name that is given to the describing of this characteristic is beta.