Shiller predicts the S&P 500 to be at 1430 in 2020, which is pretty bearish.
Now, I’m not highlighting this to say that I agree or disagree with his prediction (or really that I find predictions to be of much value at all…), but rather highlighting the value of dividends.
If you’ve got a portfolio with an average dividend yield of 3-5% or more, along with safe payout ratios, long histories of dividend growth, solid balance sheets, and companies that are in fairly healthy industries that you have a thorough understanding of, it would be fairly difficult to achieve a rate of return that low over that long of a time period. Periods in the past where that bad of a return occurred were mainly due to the equities being vastly overvalued in the beginning of that period (meaning that 3-5% dividend yields with safe payout ratios were not easy to find).
By focusing on companies that return value to shareholders, you’re pocketing a substantial part of the returns right now, giving you the option to redirect them to wherever the opportunities are.
The Passive Income Earner
I couldn’t agree more. After 2 years of focused dividend investing, it has shown its efficiency in growing my portfolio steadily. Stock appreciation is a bonus!
Dividend Growth Investor
I think that Schiller is simply extrapolating the past decade onto the next decade. Had this video been done ten years ago, he would have probably forecasted a much higher S&P 500.
Even if S&P 500 and stocks in general indeed stay mostly flat over the next decade, investors who focus on dividends would once again still manage to receive positive returns over time. If these dividends keep growing, so will investors returns.
I would actually like to see the stock market grow no further than Shiller thinks it will. For starters, I’ll be able to buy more with the income I’ll have. And because earnings will keep slowly growing, eventually the markets will do a slingshot and eventually (as is cyclically the case) the stock market will be valued far higher than it should be.
Without a growing stock market, we’ll end up with some excellent dividend yields on purchases. We’ve had periods where the average DOW company had a dividend yield exceeding 6% annually. If the market wants to grow at 2% a year, let it. We’ll still make 8% annually if we invest like Matt does. And then when the slingshot rockets—it will be a time to stay balanced, and try telling our kids that we’ve seen it all before. But of course, no new generation listens to the past one.
My Own Advisor
Totally agree Matt: “it would be fairly difficult to achieve a rate of return that low over that long of a time period.”
@Passive – We think the same!
@Andrew – The market can go sideways all it wants over the next few years, I can hear you cheering for that from Sinapore!
A volatile range bound market is a recipe for profits. I would be looking forward to his predictions if I believed him that is :)