A lot of folks, when they look back at their share price charts, tend to like smooth lines and as little volatility as possible.
But if you invest in dividend-paying companies and you buy new shares each year with the cash, volatility can be your friend a good dip now and then can help you get more new shares for the same money.
One company thats provided an exciting ride over the past 10 years is BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US). At the end of September 2004, its shares were trading for around 225p. But they soared to over 5 apiece in late 2008, before plunging back to 250p after the crisis hit and all shares were hammered.
Sincethen weve seen a steady climb back to 472p at the end of September 2014, to more than double your money over a 10-year period. A 10,000 stake invested in BAE shares in 2004 would be worth 20,978 a decade on.
Thats only the share price difference, of course, and BAE has been paying healthy dividends throughout. There was a dip in 2007, but since then the annual payment has been growing strongly again and has been handsomely beating the FTSE 100 average.
In total, youd have had an extra 7,449 in cash to add to your pot, taking it to 28,427 for an overall gain of 184%!
Now reinvest it!
That, however, assumes you just kept the cash. So what difference would it have made had you bought new BAE shares with it instead?
Thats where the price volatility helps. Whereas youd have only bought another 156 shares with 2008s cash due to higher prices that year, by September 2011, when the price was near a recessionary low, youd have snapped up another 350 of them!
The net result is that youd have ended the decade with nearly 6,900 shares in the bag where youd started out with only around 4,400. And as youd have bought most of your new ones at lower prices than today, your reinvestment would have bagged you an extra 4,015.
In all, your original 10,000 would have turned into a shareholding worth 32,442!
The next ten
What will the next 10 years bring for an investment in BAE Systems? Well, I expect volatility again, if hopefully not anything as drastic as another market crash, and that should enhance our reinvestment strategy. And with the shares trading on a forward P/E of under 12, dropping to 11 a year hence, and with forecast dividend yields of more than 4.5%, I see all the signs of another fat decade.
A well-balanced portfolio chosen from a number of sectors really is the best way to build yourself a healthy retirement pot, but should BAE Systems be one of them?
You have to decide for yourself, but the Motley Fool’s latest analysis of Five Shares To Retire On should give you some welcome help. It covers five very solid blue-chip shares and tells you why our experts think they’ll serve you well in the decades ahead!
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.