The implications of this phenomena for the long-term investor are huge. At the time of this writing, the dividend yield on the S&P 500 is higher than the yield on the 30-year Treasury. So instead of investing in the infinitely “safe” 30 Treasury Bond, currently yielding 1.797% (1), you can instead invest in 505 of the largest, best run companies in the world and get a dividend yield of 1.86% (2). What this means is that you will get a better rate on your money over the next 30 years being in equities over long term treasuries. And the icing on the cake is that you get any increases in dividends (which historically have grown by 6% per year), earnings growth, and price appreciation thrown in for free.
The last time this happened was August of 2019. Since then the S&P 500 is up 34.48% without dividend reinvestment. The time it happened before that was back in March of 2009, the exact low month of the 2007 – 2009 financial crisis when people were predicting the end of the world as we know it. From that point until now the S&P 500 index has been up an annualized 14.49% again without dividend reinvestment. Historically for the long-term investor, these have been good times to invest if you have been holding anything back.
Now for a few other numbers to consider. Per JP Morgan, since 1934, over any 5 year holding period the S&P 500 has been positive 91% of the time, over any 10 year holding period its positive 97% of the time and over any 15 year holding period, the S&P 500 has been positive 100% of the time. And friends, these statistics don’t include reinvesting dividends (which would shorten these time periods), only price appreciation. If these facts don’t give you some level of comfort and hope, you just may not be cut out for equity investing.
As always, if you would like to discuss this in more detail please do not hesitate to reach out to me directly and thank you again for entrusting us with your financial lives.
David R Henderson
- CNBC Television 2:30 PM 2/25/2020