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Back Treezzy Blog Need a 'calm down app' for your nest egg?
07 Feb 2012

Need a 'calm down app' for your nest egg? Featured

If you’re like most people with an IRA or any other type of brokerage account, you take a peek at your monthly statement or check online occasionally to see how you’re doing. You might even be one of those folks that have memorized all the tickers in your account and check market prices throughout every trading day.

The Heartburn of Market Madness

Regardless of what sort you are, my guess is that what causes you much heartburn is the damnable volatility of the market. Maybe the overall market has been bouncing all over the place and you take a look at your numbers and your account is down 5% over last month and you think, “Drat, I just wish prices would settle down instead of jumping all over the place.” (Actually, to be more precise, you probably don’t have any such thought when you’re experiencing upward volatility; at least, I’ve never heard anyone complain about that. It’s the downward volatility that unsettles people, right?)

I’ve written previously about the relative nonvolatility of dividends. Over the last 50 years, market prices have declined, on a year-over-year basis, 28% of the time and the four greatest declines averaged 27%. Yikes! Dividends, over the same period, declined only 8% of the time and the four greatest declines in dollar dividend amounts averaged 7%. Clearly, cash returned to you via dividends is significantly less volatile than market prices.

But . . . . you have to own the equities to get the benefit of those nonvolatile dividends and that, of course, puts you at risk for the downward volatility associated with marketprices.


So... Can You Volatility-Proof Your Money?

A recent study by Bespoke Investment Group, cited in Barron’s, might show the way to some heartburn relief. Bespoke generated a list of Standard & Poor 500 stocks ranked in order of nonvolatility. Nonvolatility was defined as the smallest variance between a stock’s high price and its low price over a ten-year period.

The ‘top ten’ list of least volatile stocks included WalMart, Kimberly Clark, Progress Energy, Johnson & Johnson, SCANA, Coca Cola, Consolidated Edison, H.J. Heinz, Kraft Foods and Waste Management.

The Barron’s writer opined: “The list offers a good cluster of equities worth owning by folks who get queasy from the market’s swells and slides. Collectively, this hypothetical portfolio, equal-weighted, would today yield 3.6% in dividend income and by definition would . . . weather any economic tumult that might experience. That, in effect, is a pretty good bond proxy, with relatively little downside risk in any kind of market seizure.”

Be Smart About It

Please know I am not advocating that anyone divide their nest egg into ten chunks and invest each chunk in one of these ten companies, although I will say that I’ve seen many investment strategies that would fare much worse than doing just that. But, for those who invest with current income as one objective and maybe nonvolatility of market prices as another, it might be worthwhile to consider taking one of your ten chunks – 10% of your total – and investing it in low volatility, higher dividend equities. Generally, those are the equities of companies that are considered ‘blue chip’ by any standard. If you’re not the type to invest in the securities of individual companies, there are funds out there that have income as a primary objective andinvest in these kinds of blue chippers.

The Barron’s article was directed toward “seekers of calm.” If your nest egg could use some calming, this approach might be worth some think time.

Last modified on Tuesday, 06 March 2012 20:56