In his 1994 bestseller, The Future for Investors: Why the Tried and the True Triumphs Over the Bold and the New. Wharton Finance professor Jeremy Siegel told investors that the best long-term investment is stocks, not bonds or cash. He is also a big fan of index investing.
The surprising conclusion: For investors, the best stocks are not those in hot new industries. More often than not, the best stocks are boring, traditional companies. Siegel concludes that investors can improve on index investing by holding stocks with lower price-to-earnings ratios, higher dividends and holding 40% of their stock portfolios in foreign stocks.
What caused the conclusions, traditional stocks to outperform the more exciting innovators? "The answer is simple," Siegel writes. "Although new companies grew faster than old ones in terms of earnings, sales, and even market value, investors paid too high a price for their shares to get a good return on their investment. High stock prices meant lower dividend yields, and therefore fewer shares to reinvest in dividends." Siegel calls this the "growth trap" - investors tend to pay higher prices for shares of high-growth companies, largely because they expect the companies to grow too much in the future.
So will Siegel's research results over the past 50 years stand up in the future? Siegel believes that although stock market investors face many challenges, the rules of the past 50 years will still work in the future.
As today, US Fed rate stays at peaks, dividends value stocks are undervalued, they could provide extra income when US Fed rate goes to natural.
$Vanguard FTSE Emerging Markets ETF(VWO)$
$NikkoAM-STC Asia REIT(CFA.SI)$
Comments