Wednesday Wealth Recap
- Recent data shows that the number of wealthy U.S. households reached a record high in 2020. So why are some people still getting left behind? Alexander Green debunks some common misperceptions about investing and explains how anyone can achieve financial freedom.
- Mental models can be extremely helpful tools for investors. Nicholas Vardy often shares his favorites with us, including the Pareto principle, or the “80-20 rule.” If you’re interested in finding the Michael Jordan or Tom Brady of stocks, be sure to read what Nicholas has to say.
- Our friend and colleague Jody Chudley shared a devastating chart yesterday. It shows how drastically the returns on savings accounts have decreased in the last few decades. But luckily, Jody also details a clear path forward.
- We can always count on Andy Snyder – the founder of Manward Press – to have the hottest new investment opportunities on his radar. In one recent article, Andy discusses an “oddball investment” that created dozens of billionaires last year… along with three new ways to get in on the trend.
Note from Senior Managing Editor Christina Grieves: Today’s article comes from our friend – and The Oxford Club’s Chief Income Strategist – Marc Lichtenfeld. Not only do I think you’ll enjoy reading it, but you’ll want to hear the very important lesson Marc shares.
You see, many individual investors feel like they have no chance of “beating the Street.” But that’s actually a huge misconception. Individual investors are the David to Wall Street’s Goliath… They can act more nimbly and invest more creatively, which gives them a lot more ways to “slay the giant.”
Today, Marc shares one way individual investors can do exactly that. Give it a read, and then be sure to check out Marc’s latest video about the power of income investing. If you want to learn how you can achieve a fuller and richer retirement, it’s well worth your time!
I recently read David and Goliath by Malcolm Gladwell. The book details how underdogs overcome obstacles and how those with perceived advantages aren’t always in the best position for success.
It’s a good lesson for small-budget investors…
The opening of the book describes the biblical story of David and Goliath and how David was able to overcome what seemed to be insurmountable odds to slay the giant.
It turns out that Goliath, despite being much larger than David (and being heavily armed and armored), was not prepared for the shepherd boy’s weapon.
Goliath had weapons and armor – he was geared up for close combat. But David had a sling, so he wouldn’t have to get near the giant.
They were fighting two different fights.
Despite being much smaller, David actually had the advantage in that he was able to use his weapon at a distance without ever having to get near Goliath’s sword.
Investors are perceived to be at a great disadvantage to Wall Street. The pros have more capital behind them, more knowledge and more tools.
The little guy, armed perhaps with just a few thousand dollars and a Fidelity account, has no chance of beating the big institutions that have four Bloomberg screens, one-on-one calls from analysts and enough financial firepower to buy a small country.
Or do they?
Only 37% of actively managed mutual funds have beaten their benchmarks (the S&P 500 or an appropriate index related to the fund’s strategy) over the past 15 years.
Fortunately, regular investors have the financial equivalent of the stones in David’s sling: Perpetual Dividend Raisers.
These are companies that raise their dividends every year. By doing so, they outpace inflation and increase buying power.
The longer you hold your Perpetual Dividend Raisers, the less performance you need out of the stocks – though companies that raise their dividends every year typically are growing earnings and cash flow and perform quite well.
Take Prudential Financial (NYSE: PRU), for example. It’s not exactly a high-flying stock. No one is going to mistake Prudential for Tesla (Nasdaq: TSLA).
But Prudential has raised its dividend for 13 straight years. While today it yields 4.6%, if you’d bought the stock 10 years ago, you’d be sitting on a yield of 7.5% – which is almost the annual return of the S&P 500 each year.
So just by sitting and collecting the dividend, you’re pretty much matching the market’s performance.
While institutional traders are slugging it out with one another, trying to get every dollar advantage they can to try to beat their indexes, long-term owners of Perpetual Dividend Raisers often match or beat the S&P with their dividends alone.
Then, when the stocks increase in price, their performance really shines…
The S&P 500 Dividend Aristocrats Index, which is made up of S&P 500 companies that have raised their dividends for 25 years in a row (or more), beats the pants off the S&P 500.
Over the past 20 years, the average 10-year rolling return for the Dividend Aristocrats is 183%. For the S&P 500, it’s 109%.
In other words, over 10-year periods, if you invested in the S&P, you did just a little better than doubling your money. If you invested in Dividend Aristocrats, you nearly tripled it.
That means Dividend Aristocrats outperformed the S&P 500 by a compound annual growth rate of 5.6% per year. If a fund manager beat the S&P by 5.6% per year for 10 years, they’d be considered a rock star in the industry.
Yet as an individual investor, all you have to do is invest in these types of companies, and you can easily be the rock star.
Most professional investors actively trade stocks, constantly looking for “alpha,” which is excess return on investment. It’s how their performance is measured and what their bonuses are based on.
They don’t have the ability to sit with dividend stocks for years. That doesn’t generate fees or impress bosses with bold market calls.
The big Wall Street pros, with all of their “weapons” and “armor,” can’t defeat individual investors who have the ability to invest in a completely different way.
You can be a little guy (or woman) and slay Wall Street by owning quality Perpetual Dividend Raisers for the long term.
P.S. I believe in the power of dividend investing to transform your retirement. That’s why I like to call it the “Perfect Retirement Income Generator.” To learn more about how you can use this powerful strategy to earn 20 times the yield on your average savings account in just two years, click here.