Perpetual Income: The Simple 8-Point System that Blows Away the S&P
By Chris Matthai, Investment U Research Team Member
Plunking for shares of the next “hot stock” can be dangerous… especially right now.
Regardless of whose advice you’re taking – it could be your crystal ball, your broker’s, or a respected stock picker’s – it all comes down to betting on someone’s “bright idea.”
And that’s just the problem…
Even the smartest person can’t predict the future accurately all the time. In fact, most predictions turn out to be false. Risking your money with this kind of speculation isn’t much different from gambling.
But there is a simple system that can protect your portfolio and your profits – regardless of the market’s direction.
In fact, with this system, stock downturns will actually speed up your portfolio’s growth. It’s simple. It’s proven and it works. Here’s how to create your own “perpetual money portfolio”… that doesn’t involve the next “hot stock.”
The Real “Secret” Behind Stock Returns
Dr. Jeremy Siegel isn’t a fan of the newest stock fad. And he doesn’t care much for technology that’s decades away either. As a professor of finance at The Wharton School of the University of Pennsylvania and author of “Stocks for the Long Run,” he likes the surety of facts. And a few years ago, he did a thorough study of the returns of different types of assets over the past couple hundred years.
The findings might surprise you…
Every $1 invested in gold in 1802 would have been worth $32.84 204 years later. The same dollar invested in T-Bills, with interest reinvested, would have grown to $5,061. Every $1 invested in bonds would be worth $18,235. And $1 invested in common stocks with dividends reinvested – drum roll, please – would equal more than $12.7 million.
Over that 200-year period, nothing came close to matching the long-term compounded returns of common stocks. And it’s hard to imagine that anything ever will. But what kind of stocks should investors be looking at?
Dr. Siegel also conducted an exhaustive study of stock market returns from 1871 through 2003. He showed that this simple approach to investing produced “97% of the total after-inflation accumulation from stocks… while only 3% comes from capital gains.”
Let’s review that again. Getting monthly checks produced 97% of all stock market profits for investors over a 135-year period. While only a paltry 3% came from investors buying “hot” stocks and waiting for the price to go up.
Other economists have discovered the same thing.
Kathleen Fuller of the University of Georgia and Michael Goldstein of Babson College looked at a different span of time – 1970 to 2000. After sampling 2 million individual returns, they found that during this 30-year period, dividend-paying firms have higher returns than non-dividend-paying firms – especially in declining markets!
A similar study by Standard & Poor’s showed the same results over a different time horizon. The study of total returns (price appreciation plus dividend income) shows that payers of stock dividends outdistanced non-payers by 1.9% annually from 1980 through 2003.
The point is clear… and convincing.
The most profitable investments are not the sensational high-growth wonders and IPOs that grab all the headlines. The Microsofts, Ciscos, and AOLs are NOT the biggest winners – at least for most people.
High on hype, investors almost always pay way too much for these so-called “hot stocks”… and thus get way too little payback for their money. In fact, Siegel says, these stocks “doom investors to poor returns.”
With a stock’s performance based on total return – annual price appreciation (or loss) plus dividends, a company’s dividends are a major part in their performance. Yet for many investors, it’s also completely ignored.
Instead, the most profitable stocks are often found in unremarkable industries that pay investors steadily growing incomes. And not just for a couple of years, but for decades.
Large monthly checks ensure a large, unending stream of income in all markets, both up and down.
Accelerating your Portfolio… In A Down Market
A sudden or sustained drop in stock prices is the kind of bad news most investors fear, especially those dependent on their savings. But for investors with a perpetual money portfolio, this news is actually good.
As Dr. Siegel proves in his study, a perpetual income portfolio recovers much more quickly from a bear market than growth-oriented portfolios. And amazingly, the bigger the decline – the faster you will recover.
The Great Depression wiped out millions of investors. Many stocks fell 90% or more… and many more simply disappeared. The vast majority of investors gave up on stocks altogether and flocked to the safety of bonds and treasuries – vowing never to look at another stock.
Today’s investors are feeling the same way after seeing their financial holdings decimated by the credit crisis. But percentage-wise, our downturn is still in its infancy. The Great Depression’s bear market lasted 25 long years – a quarter of a century. It was the longest “dry spell” between peak prices the Dow has ever experienced.
If you’d invested $1,000 with “super-safe” bond investments, you would have earned just $2,530 or 6% when the Dow finally returned to its pre-Crash peak in November 1954. And yet, during this same period, if you’d invested in dividend-paying companies you also would have earned 6% a year… and accumulated an additional $4,440 in earnings checks.
In addition to a stream of spendable, investable cash, there’s another advantage of dividends. By reinvesting them, they enable you to offset any short-term loss by adding to the number of shares you own – which generates added income.
In other words, when your stock’s price drops, you immediately start accumulating more shares more quickly than before the price fell… and your subsequent checks get much bigger than before.
Compare that enviable position to the plight of the person who invests hoping his stocks will “go up.” When prices decline, his portfolio is worth less. Not a happy choice if he’s about to retire… or if he’s already living off his portfolio.
The Benefits of Simplicity
The market’s biggest scam is that “investors” must trade often to make a killing, and they must trade the newest and hottest products to make money. The fact of the matter is that history and the market’s real returns don’t bear this out.
Forget about trying to time the market or jumping in and out of a stock at the perfect moment. It can’t be done with consistency and it’s not appropriate for investors; it’s for speculators. And by keeping away from high-risk investments, you’re not avoiding profits… you’re avoiding losses.
By comparison, putting money into solid companies – becoming an owner – and getting paid for it, buys you a solid history of continuous and increasing payments.
The perpetual money system generates 100% to 200% more cash than standard “income investments” like money markets, bonds or treasuries. And it makes money regardless of the market environment.
Of course every investment carries some risk but the companies in our report have an almost perfect performance record over a long period. Collectively, these companies have paid investors with 98.4% consistency over a 578 month period – that’s 48 years worth of monthly payments. All of this can be accomplished with a just handful of selected companies.
That’s the beauty of this system. It’s simple. It takes just a few minutes to set up. And after that, you don’t have to lift a finger except to deposit your monthly checks.Good investing,