A new study is directly challenging the long-held belief that retirement means lower returns on your investments.
A recent study titled “Low Risk Stocks Outperform Within All Observable Markets of the World” found that the more boring your portfolio has been since 1990, the more you have made. And it’s not just a little more profitable.
The study shows that between 1990 and 2011, steady monthly performers – Dominion Resources (NYSE: D) and Duke Energy (NYSE: DUK) were the two examples mentioned in the Barron’s article – and other stodgy, uninteresting stocks in 33 stock markets worldwide performed better than more volatile, riskier issues. Yes, they performed better than high tech and medical stocks… the darlings of Wall Street and the press for the past 30 years.
How much more? In this study, a portfolio of the lowest-volatility stocks returned an average of 18% a year more than the high fliers of the market.
Eighteen percent more annually!
This throws out everything we’ve been taught since day one in Investing 101. The idea that higher risk pays higher returns just isn’t accurate!
In fact, the study cited numerous studies from the last two decades. They looked back as far as 1926 and have come to the same conclusion. Risk doesn’t pay!
For me, the most significant findings of the study were that investors overpay for high-volatility stocks, which makes their long-term returns even worse. These stocks, which have paid so much better than the darlings of the business press, are so boring… Wall Street analysts don’t cover them.
So if you’re lamenting having to adjust the stock side of your portfolio to lower risk equities as you age… forget about it. Two decades worth of research tells us the best returns will come from the low-risk side of our equities portfolio.
You thought retirement investing was going to be years of 2% and 3% returns? It turns out, though, that low risk isn’t just good sense in your later years, it makes more money, too!
My apologies to Mark Twain for this closing:
There are so many great things about getting older. I’m glad they aren’t wasted on the young!