Suffering Stock Market Stress? Consider This Market With Negligible Volatility And Consistently Rising Values Instead
It would be an understatement to call the recent stock market activity turbulent. High stock price volatility makes investors anxious and some people even become downright frightened. These emotional responses are often exaggerated for people in or near retirement. Therefore, I contend that all investors need to find ways to keep their emotions in check in order to avoid panicking, which typically leads to the making of a devastating financial mistake.
I believe there is a viable antidote that is capable of calming investors down by empowering them to focus on one of the least volatile markets in all of finance. The market I’m referring to possesses only a small fraction of the volatility found in stock prices. Additionally, this market is predictable, consistent and produces significant levels of income. Even better, this market represents a primary source of long-term returns, and consistently rises over time.
Unfortunately, this market is hardly acknowledged or recognized by most people. Therefore, this article is offered and dedicated to enlighten investors about this powerful yet often ignored market. This is especially important during stock market times like we are experiencing today.
Stock Market Turbulence
Before I divulge the amazing constantly rising, low volatile market I discussed in the introduction, I would like to share a few excerpts from an article I recently read by Safal Niveshak titled “How to Deal with Stock Market Turbulence.” I felt Safal’s post contained a lot of wisdom and sound advice about handling a turbulent market like we have today. His article started out with the following allegory:
[drizzle]“Ladies and gentlemen, please fasten your seatbelts; the captain has just announced that we will be encountering some unexpected turbulence.
I hate hearing this phrase whenever I am flying, but there is no way an airplane can completely avoid turbulence (unless it is standing still in a hangar). When flying, captains don’t choose the route where there will be fewer clouds or less turbulence. Instead, they choose the safest, fastest way to get their passengers where they need to be. This, more often than not, means hitting a bit of unexpected turbulence.
Now, not unlike a flight, any journey you embark on is undoubtedly going to be a bumpy one. And investing in the stock market is not any different.”
Then Safal went on to offer the following sage advice, which I cannot agree with more:
“A lot of people fear stock market crashes and ‘unexpected’ turbulence like we are seeing now. But if your investment plan will only succeed if there is no turbulence at any time, it’s probably not a very good plan. If you follow a sound process, you need to embrace the turbulence, which I believe is a better option than avoiding it, if you actually want to get somewhere in your investment journey.
Successful investors are not those who tend to avoid all turbulence, crashes, and declines in their stock portfolios. Instead, they are the ones who know that turbulence might come and look forward to it, brace for it and embrace it at the same time.”
Later in the article Safal shared a thought from George F. Baker from the book “100 to 1 in the Stock Market” by Thomas Phelps that I found especially wise based on my own investing experiences and perspectives:
“To make money in stocks you must have “the vision to see them, the courage to buy them and the patience to hold them.”
From there Safal added his views on the importance of patience (a concept that I prefer to modify as intelligent patience) as follows:
“Patience – or the ability to keep on with your investment process despite the occasional periods of turbulence or euphoria – is the rarest of the three, but it pays off in the long run.”
I highly recommend you follow the link above and read Safal’s entire post, it is a very short article that I believe is chock-full of wisdom, and well worth your time, and extremely relevant regarding how to deal with how the market has been acting recently.
Dividend Income: The Primary Source of Long-Term Returns?
There is additional important information that I would like to share before I reveal the fantastic market that constantly increases in value with negligible volatility. As investors, I believe it is imperative that we all recognize and understand where the primary sources of long-term returns come from. This is critical knowledge that can empower investors to navigate through troubled waters.
In the comment thread of one of my recent articles a reader shared a link to a research report titled “Income as the Source of Long-Term Returns” produced by The Brandes Institute, an arm of Brandes Investment Partners, a highly regarded value investing firm. The following are a few excerpts from that research report that I felt were relevant to the thesis of this article:
“During the last two decades of the twentieth century, the investing world saw declining dividend and bond yields, with prices generally moving higher for both equities and bonds. In the early years of this century, investors seemed to belittle the importance of income as a component of returns, focusing primarily on the potential for capital gains.”
This next excerpt emphasized the importance of taking a long-term view with your investments:
“II. Taking a Long-Term View
One factor that has historically led some investors to underestimate the impact of income has been a reluctance to consider a true long-term horizon. References to long-term investment performance often tend to cite 3-or 5-year asset class returns. We challenge this definition of long-term horizon for two reasons. First, individuals and institutions may be investing for retirement purposes or with liability needs that have a horizon of 20 years or more. Second, the characteristics of investment returns may change significantly if long-term is redefined from 5 years to 20 years or more. While our data would allow even longer horizons than 20 years, we consider that length of period to be a reasonable practical maximum for most institutional and individual investors.”
But most relevant to this article of mine, was a discussion of the importance of income:
“III. The Importance of Income: the Historical Perspective
The debate over the relative importance of income versus capital price changes is a classic case of “tortoise versus hare.” In today’s information saturated world, investors tend to focus on financial items that tend to change rapidly (i.e., prices) rather than those that may be more stable, such as dividends. But our earlier study showed clearly that over the long term, income dominated Price movements as a source of returns, even for equities. For fixed income, income accounted for substantially all of returns over the long term.”
Finally, Brandes provided a summary of which I mostly agree with in concept, but as I will later illustrate, I do challenge parts of their conclusions:
“VII. Summary and Conclusion
Based on our review of 89 years of US investment returns across equity and fixed income, the importance of incomes contribution to total return is clear.
Fixed income returns were dominated by their income component for all time horizons longer than 5 years.
For U.S. equities, the income component was significant for time horizons as short as 5 years, and dominant for horizons of 20 years longer.
We believe this research illustrates that