Tim's Corner: How To Outperform The Market
No river, no fish.” ~ Amarillo Slim
This instablog post is sponsored by Tim Plaehn, expert on income investing and a friend & colleague of mine at Investors Alley as well as a contributor here on Seeking Alpha. Tim runs the Dividend Hunter newsletter which offers a solid & diverse selection of attractive high yield plays. The service now nearly 10,000 active subscribers and can be had HERE for the rock bottom price of $49 (It usually is $99) for the first year. Tim provides a solid selection of lower beta, high yield recommendations for these challenging times.
The guy who invented poker was bright, but the guy who invented the chip was a genius.” ~ Julius “Big Julie” Weintraub
By Tim Plaehn,
For 2020, the S&P 500 index returned 18.40%, so if you didn’t earn almost 20% in your stock portfolio, you might be wondering what happened. But just because the overall returns are high, it doesn’t mean all stocks are performing the same way. For example, Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) managed to earn just 2.30% last year.
So if your stock market results fell short of your needs or expectations, you may want to consider a more reliable investment strategy.
How to Outperform 98.8% of the S&P 500 With Dividend Stocks
THE FED, U.S INVESTMENTS, U.S. DOLLAR
February 22, 2021 6:00 am by Tim Plaehn
For 2020, the S&P 500 index returned 18.40%, so if you didn’t earn almost 20% in your stock portfolio, you might be wondering what happened. But just because the overall returns are high, it doesn’t mean all stocks are performing the same way. For example, Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) managed to earn just 2.30% last year.
So if your stock market results fell short of your needs or expectations, you may want to consider a more reliable investment strategy.
A recent note from economist Steve Blumenthal provides the returns data. The six FAAAM stocks (Facebook, Amazon, Apple, Microsoft, and Alphabet’s Google), plus Netflix, returned 49.32% in 2020. When you remove the returns from those six hot stocks, the remaining S&P 494 returned just 4.05%. The S&P stocks classified by Morningstar as value stocks returned 1.54%, and, as noted above, Buffett’s Berkshire Hathaway posted a 2.30% return for last year.
The point is that if you picked the lucky six (1.2%) out of 500 at the start of 2020, you had a good year. If you went with some value or just about any other group of stocks, you did not do very well. Combine that with a short bear market, and it is likely that most investors buying individual stocks barely broke even or worse in 2020.
The 2020 results for the S&P 494 point out my focus on higher yield investments, which provide actual cash returns through whatever happens in the stock market. Dividend income is a form of investment return that can be counted on quarter after quarter, and in some cases like our Dividend Hunter silver stock paying a 36% yield on Friday, month after month.
For retired investors, cash dividends provide a retirement income that does not require you to sell shares to pay your expenses. This strategy works especially well when the markets are down, and you would be forced to sell at a loss to have the income you want or need. Instead, building a dividend-focused portfolio that throws off enough income to fund your retirement results in a low-stress retired lifestyle.
If you are investing towards a future retirement, reinvesting dividends provides several benefits:
- Income investments pay dividends monthly or quarterly. When you reinvest, you buy more shares when stock prices are down and fewer shares when prices are high. You automatically buy low and get wealthier.
- Reinvesting dividends grows your income stream as well as your account value. When you finally retire, you just “flip the switch” and have the dividend flow into your checking account.
- Dividends are more reliable than share prices. Investing for dividends with reinvestment is a low-stress strategy that you can see working every calendar quarter.
You may be wondering, “How much can I earn with a dividend-focused strategy?” Well, the average yield from the investments in my Dividend Hunter recommendations list is 8%. It has stayed pretty close to that 8% level since I launched the service in 2020. With a properly constructed portfolio, you can earn a high cash yield which can also be stable through the years.
Think about what happened in 2020 and consider the merits of an 8% cash dividend return versus the 4% from the S&P 494.
They say poker is a zero-sum game. It must be, because every time I play my sum ends up zero.” ~ Max Shapiro
Tim Plaehn of The Dividend Hunter has developed a monthly dividend calendar. It is yours free when you click here.
Thank You & Happy Hunting,
Bret Jensen
Founder, The Biotech Forum, The Busted IPO Forum & The Insiders Forum
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