Why the secret to investing is time
Not so exciting to day-traders is the rationale for why time invested surmounts all other trading strategies. Calendar year returns define the bonus size of portfolio managers and sends the wrong message to investors who have decade(s) of time on their side to implement an investing strategy.
There are two ways to make money from investing, capital gains and dividend income. Stock and bond prices fluctuate daily but dividends are rather consistent. The combination of the two has the ability to compound growth over time, providing the investor an upside not found with any other strategy. A portfolio manager at Epoch put it this way, "Dividends are always positive contributors to equity market returns and companies that pay consistent and growing dividends have historically provided downside protection in volatile equity market environments.” ^1 The SP500 returned 240% over the last ten years with dividends reinvested and 180% without.^2
With the global economy slowing, the demand for treasury debt is significant as reflected by globally negative interest rates. Dividends, however, can still be found in stocks. The SP500 yields 1.85%, Real Estate Index yields 2.59%, and European equities yields 3.1%^2. Unlike bond income, qualified dividends from stocks are taxed at a lower rate, providing the investor with an even higher after-tax portfolio return.
If time is on your side, use dividends as a means to improve your long-term performance and while adding protection on the downside.
At Eureka Wealth Management, I help my clients create a portfolio that reflects their risk tolerance and time horizon and utilize dividend-paying investments as appropriate. I also manage the portfolio to generate income that's needed during retirement. Call for a free, initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.
^1 FT 10/18/19: How bonds became stocks and stocks became bonds" (link)
^3 Using relative SPIDERS and iShares products via Yahoo Finance.