Do you have an investment strategy that can survive twelve years with no stock market gains?
Is your basic investment strategy to invest in some sort of index fund that follows a market index?
- In late-1968, the S&P 500 Index was at about 110.
- In mid-1982, the S&P was at about 110.
- The S&P 500 Index is currently in the 2,800 range. Will your investment strategy be successful if, in 2030, the Index is still in the 2,800 range?
What is the potential solution?
Obviously, if we had that magic, crystal-ball view of the future and we saw a very volatile, essentially flat stock market for the next twelve years, we would follow some strategy other than merely riding a market index.
It would be easy to see a relatively flat stock market for several years in the future. That is basically the future we feel may happen.
There are several strategies that would probably be more successful than merely following a large index if the above scenario plays out. Some of the more common strategies may be:
- Focus on the generation of income
- Focus on high-growth segments of the market
- Focus on out-of-favor industries and companies
Most people have no strategy at all.
Our focus has been on the generation of income, especially income from dividends that have a history of growing. We think this is a very solid, common-sense approach that is understandable by our clients.
Remember, the dividend is a function of the operations of the company, thus if the company stays profitable and generates plenty of free cash flow the dividends are secure. Dividends are not dependent on a rising share price. The share price is determined by the emotion of the marketplace on a daily basis.
We are very comfortable with this strategy, but we are always considering adding other strategies. Life is not static.