7 Reasons to Invest for Income -- Reason #5
Historically, Half of All Stock Market Total Yield Has Come from Dividends
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In his book STOCKS FOR THE LONG RUN, Jeremy Siegel publishes a graph showing the total return of stocks versus bonds, cash and gold starting in the early 1800s.
It's impressive -- it clearly shows that if you'd bought common stocks in the early 1800s and held them until now, you'd have far more money than if you'd invested the same amount of money in bonds, cash or gold.
What many investors today miss is that the graph does not display only the rise of stock prices over that time period. It also figures in the average dividends paid by those stocks.
For the past 100 years, the price appreciation of the Dow Jones Industrial Average has averaged 5.25% per year. Yet stocks are commonly said to return an average of 10% per year. The remainder came from dividends.
In bear markets such as 1930-1954 and 1966-1981, dividends provided stock investors with their ONLY returns.
It's true that in bull markets such as the late 1990s, dividends seemed to be of much smaller importance. And it's true that dividend yields fell to around 1% for the overall stock market. And it's also true that if you invested in dotcom and high tech stocks you would have seen your money multiply by incredible percentages.
But it's also true that to get the best returns, you would have had to invest fairly early. It's also true that the stock market seemed risky many times even during then. I remember when stocks dipped low during the Asian currency crisis of 1997. It's also true that if you bought Amazon or Yahoo! early and watched your money multiply by 100 or more and then sold, you regreted selling early as you watched their prices continue to rise.
And it's also true that most investors held on until the Tech Wreck wiped out their gains and most of the original money they invested.
Next: Reason #6 -- Every Beauty Contest Entrant is a Winner to You
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7 Reasons to Invest for Income -- NOW More Than Ever
Rick Stooker
- The greatest secret to income investing (Einstein called it "The most powerful force in the universe")
- What -- historically -- gives stock market investors 1/2 of their total returns (from 1929-1954; 1966-1981; and 1999-mid-2008 it was the ONLY way to make money from the stock market!)
- How to avoid suffering from accounting fraud. Automatically keeps you from throwing you money away on future Enrons, Tycos, and WorldComs
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