Do you know what your money is supposed to be doing for you? Do you have a plan as to how your money should be invested? There is an old Chinese proverb that says, “If you don’t know where you are going, then any road will take you there.”
I have been managing money successfully for over 45 years and though not every trade has been successful, more have been favorable than busted. I have found that when the markets are going up, everyone is a stock picker. However, when prices fall and fall as hard as they did in October, the result is that investor confidence crashes. People who thought they were the greatest stock pickers in the world sell at any cost to get out.
Think about all the people who got out of the market when it hit bottom in the first quarter of 2009. Many of them never got back in to enjoy the incredible run over the last ten years. Many of those who got out of the market went to their bank for safety. For almost eight years, these people have earned zero interest on their bank deposits. When factoring in the inflation rate of more than 18 percent for that same period, they earned negative real returns.
On the other hand, if you just stayed the course and invested in the S&P 500 during this same period, you would have amassed a 140.88 percent return, building a significant amount of capital. Over that same period, you would have earned almost 29 percent dividend income, a significant amount. I believe in benchmarking a return that you are looking for on your money as a way to achieve a goal.
Let me use an example from one of my clients and what we are doing that has reduced his volatility and given him significant income. We established a benchmark for a common stock like Exxon Mobil that pays a dividend of 4 percent. From this point, every investment I added to his account must yield more than 4 percent. For him on the next purchase, we decided what percentage of his assets did we want to invest in on investments that paid more than 4 percent?
To begin, I checked a list of 390 stocks that were paying a dividend of 4 percent or more and began the search. I did not want to have all of his money in the same sector. A well-diversified portfolio will have about 20 different positions. In addition to common stocks, I looked at preferred shares, preferred stock ETF’s, and preferred mutual funds. In most cases preferred stocks pay a fixed dividend and rarely do the yields increase on individual preferred stocks. Exchange Traded Funds can be bought that specialize in preferred shares only, and it is possible that as the ETF adds additional positions, the yield could increase.
Remember, by establishing a baseline I will be able to figure out how much income the client can count on each month or quarter. As we get older, we have a greater need for predictable income and less of a desire for appreciation on our money. Stock markets go up and down over the short run, and we just saw in the past few weeks that all of the gains in the entire year of 2018 were gone. However, the dividends earned over the year are still in his pocket and these will continue to be paid income, regardless of the decline in stock prices.
Benchmarking might be something that you might want to consider for your own portfolio.
Dan Perkins is an author of both thrillers and children’s books. He appears on over 1,100 radio stations. Mr. Perkins appears regularly on international TV talk shows, he is current events commentator for seven blogs, and a philanthropist with his foundation for American veterans, Songs and Stories for Soldiers, Inc. More information about him, his writings, and other works are available on his website, DanPerkins.guru. To read more of his reports — Click Here Now.