Conservative Investing: Beat “Aggressive Returns” With This Safe Approach
by Dr. Mark Skousen, Chairman, Investment U
December 5, 2006: Issue #614
“There are old climbers and bold climbers, but no old, bold climbers.”
~Old saying among mountain climbers.
Last year, a friend invited me to hear professional mountain climber Ed Viesturs tell of his heroic adventures while becoming the first American to summit all 14 of the world’s 8,000-meter peaks (all in the Himalayan Mountains).
After his lecture, I asked, “How do you compare the risk-taking in climbing the world’s tallest mountains with the risk-taking in the financial markets?”“In mountain climbing,” he said, “the smart climbers play it very conservatively and wait patiently for the right time to summit the highest peaks.” He explained how many times he was within 100 yards of reaching the top of Mt. Annapurna, K2, or Everest, and turned back because the conditions weren’t perfect. Everything has to be just right when you are standing at 28,000 feet above sea level and only a few hours remain to climb to the top and return to base.
Astonishingly, he said that 40% of all climbers attempting to climb Mt. Annapurna, the last of the 14 peaks, have died. And now that he has a wife and three children, he takes even fewer risks. He has given up climbing the tallest mountains.
Unlike mountain climbing in the Himalayas, in the financial world you can be “killed” many times and make a comeback, so investors are willing to take greater risks. Yet, when it comes to conservative investing, can we not learn from Ed Viesturs and the veteran mountain climbers?
Conservative Investing Can Beat Speculating
It’s quite possible that the conservative, risk-adverse investor can outperform the aggressive speculator who is always searching for the big payoff in a little-known small-cap tech stock or a junior mining company.
I look back at my own career, and while I’ve struck it big on a couple of penny stocks – one hitting the $2 million jackpot – I suspect I would probably be further ahead if I had plodded away investing regularly in conservative, unglamorous dividend-paying stocks, rather than following the hottest strategy and madly buying and selling stocks, commodities and funds over the years.
Suppose, for example, that you invested $1,000 a month and earned an average annualized return of 10%. Here’s what you would have achieved using this conservative approach:
- After 5 years, $60,000 turns into $78,082
- After 10 years, $120,000 turns into $206,552
- After 15 years, $180,000 turns into $417,924
- After 20 years, $240,000 turns into $765,697
- After 25 years, $300,000 turns into $1,337,890
- After 30 years, $360,000 turns into $2,279,325
My Conservative Investment Recommendations Right Now
I suggest you start today with two simple Exchange Traded Funds (ETFs) geared to earn high dividends:
1. WisdomTree Total Dividend Fund (NYSE: DTD), the highest dividend-paying U.S. stocks.
2. WisdomTree International Dividend Top 100 (NYSE: DOO), which invests in the top 100 highest dividend-paying international companies. The current yield is 4.3%. Check out its performance since it went public six months ago.
There are many ways to climb a mountain. I now prefer the conservative approach.
P.S. The Oxford Club’s “All Star Portfolio” is built on this approach – big, long-term gains with below-average risk. It’s working, too. As of November 16, the portfolio’s seven positions – a mixture of stocks, mutual funds and REITs – are up a combined 24.5% year to date. Here’s how to get immediate access to all of the Club’s portfolios.
Today’s Investment U Crib Sheet
- Ed Viesturs just released his book, No Shortcuts to the Top: Climbing the World’s 14 Highest Peaks. It’s highly recommended.
- The top 10 holdings in DTD include Altria Group (NYSE: MO), AT&T (NYSE: T), Bank of America (NYSE: BAC), and Citigroup (NYSE: C). These four blue chips pay an average dividend of 4%.
- Quick Stats: There have been 267 dividend-rate increases this year by S&P 500 companies. There are 382 companies listed on the index that pay a dividend.