As the stock market enters the fourteenth month of struggling to find a catalyst for renewed upward momentum, investors owe it to themselves to take a long look at some perspective formulating groups of numbers... since the turn of the century:
Perspective Formulating Numbers, Group One: The S & P 500 is down 2.2% from the All Time High (ATH) achieved May 21st 2015, and up just 1.9% in 2016. At thirteen months, this "malaise" is the longest (but not the deepest) correction since the financial crisis ended March 9th 2009.
An intraday low of 1810.10 (-15%) was struck on February 11th.
Since its 2007 ATH, nearly 9 years ago, the S & P is up 34.5% (less than 4% per year) while producing annual dividends of less than 1.5%. Approximately 20% of the S & P companies pay no dividend at all, and less than 65% are worthy of an Investment Grade Value Stock designation.
Since the end of 1999, the S & P 500 has gained less than 3% per year.
Perspective Formulators, Group Two: The Investment Grade Value Stock Index (IGVSI) is down 3.1% from its 5/21/15 ATH, but up 9.6% in 2016. NASDAQ, by the way, is roughly 3% below where it was 17 years ago.
Since its 2007 ATH, precisely 9 years ago, the IGVSI is up 43.8% (nearly 5% per year) while providing approximately 3% in dividends. All IGVSI stocks are dividend payers, none are NASDAQ, and all are ranked B+ or better by S & P... i.e., Investment Grade Value Stocks.
The IGVSI had corrected roughly 18% by February 11th; it did not exist in 1999... but check out the link below, under "Superficial Observations".
Perspective Light Bulb, "On" Switch, Numbers, Group Three: The WCMSI (an index of Closed End Income Funds (CEFs), both taxable and tax free,) is up 7.9% since 5/21/15 and up 10.9% thus far in 2016; it was down just 3.7% through 2/11/16.
Since 2007, and throughout the financial crisis, the dividends paid on WCMSI CEFs has averaged somewhere between 7% and 9% per year (possibly more); more dividends were raised, it seems, than reduced during the debacle.
For the second time since the financial crisis, CEFs have rallied into nearly full portfolio turnover position, with profits taken at one-year's-income-in-advance compound interest rates.
Today's tax free yields average around 5.3%; taxable about 7.4% (after all fund expenses). These are the lowest yields we've experienced since the CEF rally that ended in November of 2012.
- Note that these income engines are only available in self-directed investment programs, not ETFs, not Mutual Funds, and not in most 401ks... especially now that the DOL is taking the income out of retirement planning.
Both investment "buckets" (growth purpose and income purpose) of Market Cycle Investment Management program have outperformed the S & P 500 in the nearly ten years surrounding the financial crisis, based on the raw numbers above. Monthly payments to retirees have been paid from income, not principal, throughout.
The IGVSI was down 11% less, and the WCMSI 30% less, than the S & P 500 at the bottom of the financial crisis.
Fluke? Check out the numbers from 1999 through 2009, "The Dismal Decade".
Conclusion: What's the "take away" from these numbers?
Clearly, an investment program balanced between the highest quality companies (ranked by S & P) in the "Growth Bucket" and a wide variety of historically "income dependable" CEFs, either taxable or tax free, would most likely have outperformed the S & P 500 alone by a considerable margin thus far in the 21st century. Ya think!
Dilemma: If you tell "Your Gal", "Guy", or Employer that you would like this kind of high quality growth and income program, they won't even know that it exists... and will have no incentive from their financial institutions to find it for you.
For the vast majority of 401k participants, it's even worse... the regulators have concluded that quasi retirement programs must be low cost, even if that precludes the development of any spending money at all.
Solution: Ask "your person" how much real monthly income you will be receiving at retirement without selling shares or units, without reducing your principal, and without buying the annuity of the month.
Reasonable objective: A program that will produce historically secure dividend and interest income in excess of the amount you will need to live on (and to pay Uncle); a program capable of growing your income in retirement, after the salary deduction and employer matching contributions have left the building.
The "retirement readiness" credo:
Neither stock market downturn nor higher interest rates will have a significant negative impact on my retirement income; they could, in fact, allow me to grow that income even faster!