by Ryan Cole, Investment U Research
According to Wharton finance professor Jeremy Seigel, one of the more respected minds in economics, 97% of stock market gains come from one thing and one thing only.
Most people immediately assume one of three answers, but don't fall to the same misconceptions that the masses do. Contrary to what you may think, the vast majority of stock market gains do not come from:
- Capital Appreciation – The occasional home run aside, stock prices tend to even out over time, at only a little better rate than inflation.
- M&A activity – Most investors won't see takeovers or mergers make any real difference in their overall portfolio.
- IPOs – Though IPOs do represent some of the largest single-day moves, the underlying stocks usually settle down into normal trading patterns fairly quickly.
Instead, 97% of all the gains the stock market has ever produced since 1900 have come from one, safe, boring type of investment: Dividends.
More specifically, dividends reinvested in the paying company produce the vast majority of gains, since they allow compound interest to do its work.
Surprised?
Join the crowd. Just don't doubt me if you want to make any real headway in this market.
Dividends – A Return To Basics
Over the past few years, dividend investing has become an afterthought for many investors.
Call it a hangover from the tech boom of the late '90s when people made fortunes – and then subsequently lost most of them – on speculative tech companies that paid no dividends anyway.
But since the economic recession struck, investors have turned to more secure ventures… like dividends.
Gold and other traditional stores of value keep hitting all-time highs, with silver gaining 30% in the past month. The global community has largely lost faith in the dollar, and let's just say that government bonds aren't what they used to be.
No wonder so many prudent investors have taken all their money off the table!
But there's just one problem to that understandable reaction: They don't know how far this bull will run. For that matter, nobody else does either. It could climb significantly higher still, costing your profits that could haunt your portfolio for years.
So don't give up quite yet.
