The Long Term Investor

Well it matters to me...Zukodany....because the research and my experience tells me that.....all in when you get the money.......will BEAT market timing. Why? Because no one can actually market time the markets......they will miss some explosive rally....or.....they will miss enough gains +reinvestment of dividends on that money to put market timing in a hole....or.....they will never be able to figure out when is the right time to get in and they will sit longer than they should waiting for that.....mythical.......right time.

BUT....personal preference. AND.....mentally....most people....just can not bring themselves to go all in all at once when the money is available. Their BRAIN....tells them they can time the markets.....in spite of the results of the ACADEMIC RESEARCH.

I ALSO.....like to have ALL my money productively invested.....so......I can collect those DIVIDENDS four times a year or more if there is a special dividend like Costco has done in the past and get those dividends reinvested as more shares. The DATA and research shows that it is the reinvesting of those dividends.....every 3 months....at whatever the market is at.....that gives a substantial amount of COMPOUNDING over the long term.

HERE are a couple of articles.

(BOLD is my opinion OR what I consider important content)

How reinvesting dividends has affected returns over 25 years

https://www.schroders.com/en/insigh...dividends-has-affected-returns-over-25-years/

"Reinvesting dividends is one of the most powerful tools available for boosting returns over time. Investors in the MSCI World would certainly have noticed the difference over the last 25 years.

For instance, if you had invested $1,000 on 01 January 1993 in the MSCI World, the capital growth would have produced a notional return of $3,231 (by 7 March 2018). Annually, that represents a growth rate of 5.9%.

But the picture changes again once dividends, the regular payments made by companies to their shareholders, and the miracle effects of “compounding” are included.

By reinvesting all dividends, the same $1,000 investment in the MSCI World would have produced a notional return of $6,416, representing annualised growth of 8.3%.

In percentage terms, it’s the difference between your money growing by 323%, without dividends reinvested, or 640% with dividends reinvested, nearly twice as much.

The reason for this stark difference in returns is the compounding effect, where you earn returns on your returns. This can snowball over time to produce far more than you might expect.

The same story has been repeated across many stockmarkets in the past 25 years.

As the table below shows, if you invested in the FTSE 100 you could have almost doubled your returns by reinvesting dividends. In China reinvesting dividends might have been the difference between making a profit and a loss.

Each index would have returned more if you reinvested dividends.

Overall, the average annual growth across eight markets without dividend reinvestment was 4.3%. Including dividend reinvestment increased the average to 7.1%.

However, returns have fluctuated for each index year-on-year in much the same way as the MSCI World Index illustrated in the chart above. Stockmarket investing carries a high degree of risk and past performance is no guide to future performance and may not be repeated.


Index Annual return excluding dividends Annual return including dividend reinvestment

Hang Seng (Hong Kong) 7.0% 10.7%

S&P 500 (US) 7.5% 9.7%

MSCI World 5.9% 8.3%

MSCI Emerging Markets 5.3% 8.0%

FTSE 100 (UK) 4.1% 7.8%

CAC 40 (France) 4.3% 7.6%

MSCI Japan 1.3% 2.8%

MSCI China -0.5% 2.0%
Please remember past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Source: Schroders. Thomson Reuters data correct as at 07 March 2018. Returns based on local currency.

The importance of dividends in the age of low rates
Low interest rates, part of the measures deployed by central banks to revive flagging Western economies following the global financial crisis, have driven down yields on more traditional sources of income such as government bonds (gilts) and savings accounts.

Interest rates, and government bond yields, across much of the developed world remain near historic lows.

For example, yields on 10-year benchmark government debt in the UK, Germany, and Japan are 1.54%, 0.67% and 0.03% respectively, according to Thomson Reuters data. The yield on US government debt is a little higher at 2.88%.

But compare that with 25 years ago, the starting point of our dividend data, and it’s starkly different: all four bonds were yielding more than 4.5% in 1993.

By comparison, the dividend yield on the FTSE 100 is now 4.1%. In the US it is 3% and in Japan it is 2%. This is why income-hungry investors have turned their attention to stockmarket dividends.

The chart below shows global government bond returns over the last 25 years.

If you had invested $1,000 on 01 January 1993 in government bonds, as measured by the BofAML Global Government Total Return Index (including interest payments), the capital growth would have produced a notional return of $2,548 (by 7 March 2018). Annually, that represents a growth rate of 5.1%.

Why could dividend reinvestment be effective?
When purchasing a share, investors can elect how they will receive any future dividends. They can choose to receive cash, referred to as income, or use that money to repurchase more company shares.

Investors must elect to repurchase more shares to trigger the start of a process Albert Einstein called “the eighth wonder of the world”: the miracle effect of compounding.

Compound interest, put simply, is interest on interest and it can help an investment grow at a faster rate. By reinvesting dividends, you give your stock holding the potential to earn even more dividends in the future.

Of course, the value of compounding increases over time, accelerating shareholder value, especially when share prices increase.

Beware of the dividend trap
It is important to remember companies do not have to pay dividends and dividends can be cut or cancelled at any time.

Some companies even borrow money to pay dividends, to keep investors happy. This is not always a sustainable approach.

Borrowing money to pay a dividend could be a symptom of a company with a weak balance sheet. It is advised that investors do their due diligence before they make any investment.

Nick Kirrage, Fund Manager, Equity Value, said:

“Dividend reinvestment is one of the most powerful investment tools available. As our research shows, the potential difference to the rate of return dividend reinvestment makes could be substantial.

“In an era where interest rates are so low investors need to be aware of relatively simple investment techniques that can help them build up their returns. Dividend reinvestment is a simple technique.

“Over time, those seemingly small amounts reinvested can grow into much bigger sums if you use them to buy even more shares that pay dividends in turn.

“Investors need to do their research and make sure the company they are investing in can afford to pay their dividends on a sustainable basis. Your original capital is also at risk, so it pays to be picky.

“As a way of building up your investments dividend reinvestment can be powerful.”"

(CHARTS OMITTED ABOVE BECAUSE THEY DID NOT PASTE.....see original article)

AND

Dividends Play a Big Part in Performance

https://www.snideradvisors.com/blog/dividends-play-a-big-part-in-performance/

"Many investors fail to appreciate the substantial impact that dividends have on stock performance over time.

According to Hartford Funds, more than 80 percent of the total return of the S&P 500 index between 1960 and 2016 is attributed to the compounding of reinvested dividends. The same study found that companies that grew or initiated dividends experienced the highest return relative to other stocks since 1972 with significantly less volatility. In other words, companies that pay dividends offer the highest returns and the lowest risk!

Let’s take a closer look at how dividends impact stock performance and why investors should pay attention to total returns rather than price returns when building their portfolio..

Price Return vs. Total Return
Investors typically look at two different types of returns for stock indexes, mutual funds, exchange-traded funds (ETFs) or their own portfolios: Price return and total return.

The price return typically captures the capital gain or loss without coupons or dividends. By comparison, the total return captures both the capital gains and the income generated from coupons and dividends. The latter provides a much more complete picture of performance — especially for stocks or funds that have high coupons and dividends.



Total Return vs. Price Return for the S&P 500 Index – Source: Bespoke

The catch is that the total return assumes that dividends are reinvested into the stock or fund in question.

For example, the S&P 500 index is a total return index that assumes any dividends issued by its component companies are reinvested in the overall index. If you’re not reinvesting these dividends in your portfolio, your return will differ from the total return index value over a period of time.

Different companies may also have different definitions for price versus total returns.

For instance, BlackRock’s exchange-traded funds’ (ETFs) market price return and total return both include distributions. The difference is that the total return is computed from the net asset value, or NAV, whereas the market price return is computed from a market price midpoint.

What It Means for Investors
The first takeaway is that dividends have a significant impact on a stock portfolio’s performance. Dividend-paying stocks tend to outperform non-dividend-paying stocks over time in total return. This means that investors may want to consider building a dividend-centric portfolio — especially if they’re nearing retirement and want less volatility.

The second takeaway is that investors should take the time to understand different return calculations when comparing stocks and building their portfolio.

Let’s compare two stocks to understand the difference. Image two stocks both priced at $25. Your first stock pays a $0.25 dividend each quarter. This would be a 4% dividend yield. Your other stock does not issue a dividend. Twelve months later, your dividend paying stock is trading at $24.50 and the other stock is still priced at $25. Even though your dividend payer declined in price, it still outperformed the other stock because you collected $1.00 over the course of the previous 12 months. Many investors just look at the movement in price when comparing two stocks and forget about factoring in the dividend payments as well.

Total returns, or returns by other names, that include distributions, coupons, and dividends are much better for comparison than price returns, or returns by other names, that only look at the capital gain or loss from the NAV or market price. This is especially true when comparing stocks that pay a high dividend with growth stocks that offer no dividend.

Investors should also be mindful when making assumptions using a total return index performance since these returns depend on dividend reinvestment. When projecting capital gains or losses for a portfolio, you may need to adjust them depending on whether you plan to withdraw dividends to fund retirement or reinvest them in the fund for long-term growth.

Finally, it’s important to take these factors into consideration for benchmark indexes. For instance, if you’re benchmarking performance against the S&P 500 index, you must ensure that your performance metrics assume that you’re reinvesting any dividends back into the portfolio. Otherwise, you may need to adjust or select a new benchmark index.

Dividend Reinvestment Plans (DRIPs)
Many mutual funds make it easy to reinvest dividends, but individual stocks make the process a bit more challenging. The good news is that every public company wants investors to reinvest this capital to improve their price and liquidity, so some have introduced dividend reinvestment plans, or DRIPs, to make it easy.

Automatic DRIP plans are programs offered by brokerages to enable investors to have their dividends automatically used to purchase additional shares of the issuing security. While the practice has been widely used among mutual funds and blue chip stocks, it’s relatively new for ETF issuers and may not be available for smaller stocks.

In cases where DRIPs aren’t available, investors can manually reinvest dividends by taking the cash and using it to execute additional trades within their brokerage. Some brokerages also provide commission-free dividend reinvestments. The added benefit of this approach is that investors have more control over the timing and execution of the trades.

It’s important to keep in mind that settlement periods may affect both DRIPs and manual reinvestment. The settlement period for most mutual funds is just one day, but stocks can take three or more days to actually receive cash in your account. This means that reinvestments may be delayed, which can impact the timing and pricing of the repurchases.

The Bottom Line
Dividends have a significant impact on stock returns that many investors fail to appreciate.

Total returns are the best way to compare the performance of different stocks since they account for the impact of distributions, coupons, and dividends. This is especially true for comparing the performance of dividend stocks with growth stocks.

If you’re looking for alternative ways to generate income from your portfolio, you may want to consider writing covered call options. Selling call options provides another person with the right to buy stock that you already own in exchange for an upfront premium that you keep. The goal is to collect the premium without having the stock called away. Covered calls are a great way to boost the income on a dividend paying company."

MY COMMENT

MY BIAS....is to SQUEEZE every penny.......and have it all working for me as soon as possible. AND.....since I let winners run in my small number of stock and fund holdings......I always automatically reinvest ALL dividends and capital gains in the original holding.

The things I do as an investor.......All in all at once.....no market timing.....always reinvesting dividends......are based on the........"PROBABILITIES"........as shown in the academic research.

BUT....regardless of if you agree or how you do it......it is stock and fund investing that WILL give most people the greatest return on their money over the long term......however you choose to do it.

Once again today.....I heard a "talking head" say......."wow, with the ten year now yielding about 1.5% that is going to compete with stocks". You have got to be kidding me......I have NEVER known.....ANY.....stock or fund investor that would take a ten year yield of 1.5% INSTEAD of their stocks or funds. In fact most stock or fund investors that I have seen over the years had ZERO interest in Treasuries at all whether a Ten year at 4-5% or a Thirty year at 6-7%.

 

WELL....while I was typing the markets closed:

DOW year to date +1.05%
DOW for the week (-1.78%)

SP500 year to date +1.47%
SP500 for the week (-2.45%)

NASDAQ 100 year to date +0.16%
NASDAQ 100 for the week (-4.94%)

NASDAQ year to date +2.36%
NASDAQ for the week (-4.92%)

RUSSELL 2000 year to date +11.45%
RUSSELL 2000 for the week (-2.90%)

 

A good day today.....green. AND a beat of the SP500 by .78%. So a good day to end the week.

A nice place to start fresh from next week. SOON....the fascination with the ten year yield will WEAR OFF. I have often seen interest rate MANIA in the past that goes away in a week or two. Of course it .........partially.......depends on the media. BUT......a week or two or three of good gains and this rate stuff will be forgotten.....for now.

EDIT: I corrected my beat of the SP500 above because I had the wrong figure for the SP500 initially.

 

HERE is a little article that I like. My only point of disagreement is with re-employment. I am in wait and see mode due to what the government will be doing with the minimum wage, illegal and legal immigration, importing foreign white and blue collar workers, regulations and laws that hurt business and raising taxes.

When Will the U.S. Economy Recover?
The U.S. economic recovery paused at the end of 2020, but it will soon be ready for liftoff.

https://www.morningstar.com/articles/1026184/when-will-the-us-economy-recover

(BOLD is my opinion OR what I consider important content)

"The U.S. economic recovery paused at the end of 2020, as a third wave of the coronavirus pandemic caused a retreat from the return to normal activity. This is no indication that the recovery is finishing up for good, however. Once the United States achieves herd immunity and we reach the end of the pandemic, we expect the U.S. economy to take off like a rocket.

Consumers are eager to spend, but their options are limited currently by the need to social distance. Normalization of consumer behavior following mass vaccination will mean a snap-back of consumer services, driving an overall GDP recovery (including a full recovery in the job market). Households and firms alike are in good shape on average thanks to record stimulus in 2020 and another massive stimulus injection likely coming in 2021.

We project U.S. real GDP growth of 5.3% in 2021 and 4% in 2022. We now forecast GDP to surpass our pre-COVID expectation by 2022.



U.S. Economic Recovery Paused at End of 2020 (Due to COVID-19 Third Wave)
After widespread shutdowns and plummeting confidence caused a collapse in U.S. economic activity in April 2020, the U.S. economy mounted a very impressive recovery in the following few months.

However, this recovery essentially paused in the final months of 2020. Employment was about flat from October 2020 through January 2021 and is still down 5.4% from January 2020 levels. The halt in activity growth was ultimately due to a halt in consumer expenditure growth, with nominal personal consumption peaking in October before slipping through December to down 2.6% from January 2020 levels.



More on This Topic

The third wave of COVID-19 particularly affected consumer services spending, which ceased recovering in September.

Consumer services account for 70% of total consumer expenditure, and they have consistently been the part of the economy hit hardest by social distancing needs.

Though the full range of spending behavior has been constrained, we think consumers remain eager to spend, as evinced by very strong consumer goods sales in the second half of 2020. In particular, spending on big-ticket items like autos has been solid, which virtually never happens in a typical recession.



Mass Vaccination Will Enable a Completion of U.S. Economic Recovery
As of the fourth quarter of 2020, the hit to U.S. GDP from the pandemic recession is now entirely attributable to consumer services, and so a complete U.S. economic recovery is waiting on consumer spending on services. We believe that will come with mass vaccination in the U.S. in mid-2021.



Consumers have consistently responded to troughs in infection rates during the pandemic by increasing their participation in consumer services, such as restaurants, hotels, and air travel. We saw this pattern play out in May and June (after the first wave) and August and September (after the second wave).

Once the threat of the virus is essentially removed, we think the floodgates will open on services spending.

Services Drive Large Consumer Spending Recovery in 2021 and 2022
Our base case is that the U.S. will achieve herd immunity by May, or at least by July. Herd immunity is when enough of the population has immunity (either via vaccination or prior infection) that the natural growth rate in cases is negative, even without social distancing or other interventions. In other words, it means that a complete return to normal is possible.

With this timeline in mind, we forecast a 6.7% jump in real consumer services expenditure in 2021 followed by a 5.5% increase in 2022. Given that services account for 70% of personal consumption, this causes overall personal consumption to increase sharply, up 6% in 2021 and 4.2% in 2022.



Job Market Should Recover in Tandem With Consumer Services Spending
Ultimately, a sustained economic recovery will require a recovery in labor markets. As of January 2021, U.S. employment was still down 5.4% from January 2020 levels. This is still about as bad as the Great Recession nadir (employment down 5.6% from November 2007 through January 2010).

But if consumer behavior returns to normal when the U.S. reaches herd immunity in mid-2021 as we expect, then a strong labor market recovery is assured. This is because the industries hardest hit by the pandemic (mainly consumer services like restaurants and hotels) are disproportionately important for the labor market: They account for just 6% of U.S. GDP but 15% of U.S. employment (at 2019 levels).

Employment will recover in tandem with output in these hard-hit industries, which will be crucial for the labor market recovery. We forecast that the U.S. employment/population ratio will recover to 60.5% in the fourth quarter of 2021, only just below that of the fourth quarter of 2019 (61%). Commensurately, the unemployment rate will fall to 4.3% in the fourth quarter of 2021 (versus 3.6% in the fourth quarter of 2019).



2020 Fiscal Stimulus Furthered U.S. Economic Recovery (and More Stimulus Is Coming)
The U.S. delivered unprecedented levels of fiscal stimulus in 2020. The federal deficit/GDP reached about 16%, the highest level in peacetime U.S. history (and the highest level in any year outside of the World War II era). This stimulus caused private incomes to soar in 2020. Much of this income windfall was saved, and this store of savings will fuel higher spending and economic activity in 2021 and years to come.

Furthermore, 2021 is set to bring a near repeat of this record-shattering stimulus, as we project that the federal deficit/GDP will only slip to about 15%. This incorporates our expectation that President Joe Biden’s proposed $1.9 trillion stimulus plan is largely enacted in full.



How High Can the U.S. Economy Go?
Thanks to mass vaccination plus record levels of fiscal stimulus, there's little doubt now that the U.S. economy will not only recover from the pandemic but that it will test its limits in a way that hasn't been done since before the Great Recession.

The key question then turns to where the upper limit is. We're not ready to match some of the more optimistic forecasts we’ve seen, as we think the U.S. economy will probably start brushing up against capacity constraints around 2022. We’ll cover this topic in more detail in upcoming reports."

MY COMMENT

IF anything I believe that the projections in the above article are on the CONSERVATIVE side. I expect that just about EVERY category will BEAT the above numbers.

As I said above......my one disagreement is with employment. I see a STRONG likelihood that jobs will languish just like they did from 2009 to 2016....due to the SAME government policies......and........perhaps those policies on STEROIDS.

VERY good times ahead for the next couple of years for long term investors.

 

YEAH....one of the articles above mentions the issue with investors needing to be aware of the likelihood of continuation of a dividend. They do not always go up and can be cut or suspended. BUT....it is not just the old school companies that pay a dividend...many of the more mature tech and other hot stocks DO pay a dividend.

I am ALWAYS WARY of stocks with dividends that seem too high......those above 3.5%......and especially those at 5-6% or above.

The main thing is to actually invest. And that means doing what is comfortable for....."you". If that means dollar cost averaging....or market timing.....or whatever......JUST DO IT.

 

WELL....Mr Potato Head....has been in the news a lot lately. You know you are getting OLD when you remember when......you had to supply your own real potato.

AND.....Mr Potato Head comes with 13 pieces and Mrs Potato Head only comes with 12 pieces.....GET OUT OF THE GUTTER.....the extra piece is the MUSTACHE.

 

Zykodany....you are doing really well for a relatively new investor. Probably because you are a business owner and collectable dealer. So you have lots of business experience.

You started investing during the most CRAZY time possible. Now that it is going to be a normal market going forward you will have plenty of time to find out what works for you and fine tune how you wish to invest.

 

Well I just did my $100 monthly.....for March..... to my Coinbase account for some TINY percentage of one bitcoin. It just seems kind of STUPID to be putting $100 into something that is at a price of just over $47,000 for.......ONE COIN. BUT......it is just MAD MONEY anyway. I will be able to BRAG about how smart I am when it goes to $10,000,000 or above.

 

Yeah....it is like starting to invest. I think just abut ALL of us started this way. A small monthly amount squeezed out of the budget. Getting to that first $5000 and than $10,000 took so long.....but.....was such a MILESTONE. Getting to the first $100,000 seemed impossible.....but it happened. And....from that point on it gets easier and easier to hit the next milestone.

One of my kids and their spouse are both very investment oriented. The other and their spouse were not very oriented to investing. Probably because they work in Public Safety and have a great pension system. I HARPED on them for years to put up a monthly amount every month and finally.....over time..... worked them up to $500 per month EACH after years of bugging them to do more.

FINALLY.....after being able to save some money from a couple of house sales that they did not need for the new house and the monthly contributions.......ALL in the SP500 Index.....they hit $250,000. NOW....they are getting excited about it......and.....they are seeing the light. They are seeing that ALL that I told them over the years is happening....and they are seeing the impact of compounding. They are ALSO seeing all their friends have a good pension....but no real savings to speak of. And.....realizing how nice it is to have that big chunk of extra money......compared to most people they know.

I think when my wife and I first started out......on a combined income of $600 per month.....we were putting away $15 per month into savings. It was a struggle. We would save for a while and than some expense like a new tire or a car repair would hit us. At least we had good family support as a back-up if needed....although we liked to make it on our own as much as possible. That income is not as bad as it sounds now. College grads at the time were starting at about $650 to $800 per month in their first jobs. I was in school full time and working 20-25 hours per week at $2.50 per hour. We were on food stamps for about 3 years. BUT....we were able to buy a house for $16,000 under a HUD program with nothing down.

SO YES........STEP BY STEP.....one small step at a time. It is mostly about developing the right life-long money habits and the right mind-set.......set GOALS....have a plan.....and....stick with it......VISUALIZE the future you want for yourself and your family. ANYONE reading this.....YES......YOU CAN DO IT......the majority of us posting on here started the same way.

 

HERE....is a very clear indicator of what people REALLY think of all the......"stuff"....in the media lately about inflation and interest rates.

Undaunted Bulls Keep Shoveling Money Into Stocks

https://finance.yahoo.com/news/undaunted-bulls-keep-shoveling-money-210713299.html

(BOLD is my opinion OR what I consider important content)

"Whether it’s heroic resolve or epic naiveté, stock investors are giving no indication that they are troubled by the worst volatility to land on the bond market in a year.

In a week when a spike in Treasury yields pressured prices across the equity spectrum, U.S. exchange-traded funds consistently saw inflows -- including $2.7 billion at the height of the carnage on Thursday. All told in February, ETFs sucked in a cool $80 billion, four times the 12-month average, data compiled by Bloomberg show.

It’s the same optimism that has underpinned the 70% rally in the S&P 500 over 11 months, the best start for a bull market in nine decades. While the sudden jump in yields erodes one pillar support for stock valuations, bulls are choosing to view it as a sign of economic strength that will boost corporate earnings.

“Investors are looking at the market today and saying, ‘Wow, this is going to come back faster than I thought. I need to position myself accordingly,’” said Wayne Wicker, chief investment officer at Vantagepoint Investment Advisers. “There’s a fear of missing out, of being under-invested.”

The bullish view has recently been tested, including in the last five days, when $1 trillion in value was erased from share prices. As 10-year Treasury yields surged to a 12-month high, favored shares sporting high valuations took another hard hit. The Nasdaq 100 dropped the most since October, while Tesla Inc. and star manager Cathy Wood’s ARK Innovation ETF both suffered their worst week since the bear market last March.

People nevertheless bought the dip, with the S&P 500 reversing a decline of almost 2% on Tuesday. Even during Thursday’s rout, signs of panic were few. Volume in the session was largely in line with the year’s average. The Cboe Volatility Index’s spot price stayed below that of its two-month futures, failing to form an inverted curve that usually signals heightened investor fears.

“We’ve seen for many reasons that people have been trained to buy the dips,” Kim Forrest, chief investment officer of Bokeh Capital Partners, said by phone. “Just about every economist out there thinks the U.S. GDP is going to be 6% or above and that says growth. And yes, there’s some specter of inflation that may bubble up,” but, she said, “people are not afraid of inflation because we haven’t had that horrible really life-changing inflation.”

Despite inflation scares emanating from fixed income, energy and financial shares -- companies that are seen among those benefiting the most from an economic rebound -- advanced for a fourth week in the latest sign of a deepening reflation trade.

The army of day traders, whose buying force had just started to subside before this week, according to JPMorgan Chase & Co., revived their interest in some of the Reddit-driven meme stocks. GameStop Corp., a poster child of the 2021 retail frenzy, gained 151% this week.

“We would admit to still seeing some pockets of speculative excess out there,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management. “When we reach levels of maximum bullishness, that is usually a better time to pare back,” he added. “Market pullbacks like we’ve had this week serve as wake-up calls for investors that buy first and ask questions later.”

Rising yields are threatening one big bull case for equities. A valuation methodology, sometimes called the Fed model that compares corporate profits to bond rates, shows stocks are losing their edge fast. The S&P 500’s earnings yield -- how much profits you get relative to share prices -- recently sat about 1.7 percentage points above the yield on 10-year Treasuries, the smallest advantage in three years.

But from a fund flow perspective, higher yields driven by economic growth tend to be a good thing for stocks, according to Emily Roland, the co-chief investment strategist for John Hancock Investment Management.

Past episodes of rising rates have foreshadowed strong equity inflows, according to a study by Deutsche Bank AG strategists including Parag Thatte and Binky Chadha. Since 2008, rate upcycles have coincided with positive fund flows in five of the six instances, with inflows averaging $14 billion a month, the firm’s data shows. That compared with outflows of $8 billion in periods when rates were flat or falling.

“We’ve seen a backup in yields, but the return potential in fixed income is going to be very low after two pretty great years for bonds,” said Roland. “Equities we expect to likely do the heavy lifting in a portfolio this year, and investors may be waking up to that.”"

MY COMMENT

DUHHHHH.....it is obvious that stock and fund investors are NOT going to BAIL right at the start of the 6-24 month revival of the entire economy. The data and information in this little article represents....REALITY. NOT...the constant FEAR MONGERING that we see every day incessantly in the media.

Many people...probably more than anyone realizes.....have been siting for a long time waiting to see if it is time to get back in the markets. Over the next year there is going to be a lot of investors FINALLY getting up the nerve to come back into the markets. In addition current investors WILL stay invested and often ADD to their accounts.

The NUMBER ONE indicator that I would trust over anything else is....what are REAL people ACTUALLY doing with their money.......and....where are they investing. I SEVERELY DOUBT....that you are going to see many people bailing into the 10 year Treasury to get that.....scintillating.....1.5% yield.

 

NO....you are not a critic....Rustic1. You have a way that you invest.....based on your life experiences and what works for you. What is important is the fact that you ARE an investor. EVERYONE on here has their own style.

My one kid and their spouse.....for them the SP500 is a great one stop shopping investment that....at least.....gets them into the markets. They are never going to be very hands on investors....and.....the INDEX gives them an easy way to do it. It fits their needs......as an easy and AUTOMATIC way to invest. AND.....it fit......MY....needs as a way to get them started investing for their future so they would not just be dependent on their pensions when they retire.