Over the past six weeks, Wall Street and Main Street have received a number of harsh reminders. Namely, that the stock market can, indeed, go down, and that the reason for a stock market correction is rarely known ahead of time.
Although Wall Street made a valiant effort to ignore the potentially disruptive impact of the coronavirus disease 2019 (COVID-19) through mid-February, it became impossible to sweep under the rug when the illness began popping up in our own backyards. Today, we're witnessing unprecedented mitigation efforts designed to flatten the curve and slow the spread of the coronavirus, which has killed approximately 34,000 people worldwide as of early Monday morning, March 30, per Johns Hopkins University.
Unfortunately, the side effect of these mitigation efforts is an abrupt halt to nonessential economic activity, leading to supply chain disruptions and layoffs within the U.S. and around the globe. It's these uncertainties that have Wall Street on edge.
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Here's a historically guaranteed way to make money in the stock market
The steepest decline into bear market territory in the history of the stock market probably has a lot of investors wondering what they should do with their money. I know I've personally fielded calls and texts from family and friends recently wondering if now is the time to cash out and head for the hills.
What I can tell you is this: Unless you absolutely need the money in the very near future or your investment thesis has somehow been debunked by the coronavirus crash, selling now would be a monumental mistake. I know this for one key reason – I'm a big fan of historical data.
According to the historic returns of the benchmark S&P 500 (^GSPC +0.62%), there's only one thing you need to do if you want to make money every single time: Buy an S&P 500 tracking security and hold it for at least 20 years.
Although rolling 20-year returns of the S&P 500 have varied significantly over the past century (1919-2019), there is one undeniable consistency according to data from Crestmont Research. No matter when you purchased an S&P 500 tracking security over the past 100 years, your average 20-year return, inclusive of dividends, would have been positive.
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With only two exceptions (1948 and 1949), your rolling 20-year returns would have been less than 5% per annum, inclusive of dividends. Comparatively, you'd have earned an average of at least 10% per year over the trailing 20-year period in more than 40 years over the past century, and at least 13% per annum in 20 of those years. These long-term returns absolutely run circles around the returns by provided by bonds, oil, gold, housing, and bank CDs. The key, of course, being that you hold onto your investment for at least 20 years.
Three unique ways to play this stock market guarantee
Investors looking to put their capital to work on this downtrend and lock in those almost-certain long-term gains at these depressed levels have a couple of ways to do so.
The first, and arguably most popular security, is the SPDR S&P 500 ETF Trust (SPY +0.60%). This exchange-traded fund is highly liquid (its average daily volume over the past three months is close to 148 million shares), is designed to very closely track the performance of the S&P 500, and holds more assets under management than any ETF. In terms of net expense ratio -- i.e., the management fee percentage that's deducted annually from your investment -- buying the SPDR S&P 500 ETF Trust will set you back 0.09%. Thankfully, index-tracking ETFs tend to have minimal net expense ratios.
However, a competitor of the SPDR S&P 500 ETF Trust might be even more compelling. The Vanguard S&P 500 ETF (VOO +0.59%) also attempts to closely mirror the returns and yield of the S&P 500. The Vanguard S&P 500 has roughly half of the assets under management as the SPDR S&P 500 ETF, but it offer a net expenses ratio of only 0.03%. We're only talking six hundredths of a percent difference between the two, but if you're investing a substantial sum of money, the cumulative savings in choosing the Vanguard S&P 500 ETF can certainly add up over a rolling 20-year period.
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A third and final option, which is a bit more off-the-wall than the two tracking indexes I've mentioned, is the ProShares S&P 500 Dividend Aristocrats ETF (NOBL +0.22%). I say "off the wall" because the ProShares S&P 500 Dividend Aristocrats ETF isn't tracking the roughly 500 companies that make up the S&P 500. Rather, it only tracks the performance of the 57 S&P 500 companies that've raised their dividend for 25 or more consecutive years.
Why this ETF, you ask? The simple reason is that dividend stocks handily outperform their non-dividend-paying peers over the long run. According to a 2013 report from J.P. Morgan Asset Management, publicly traded companies that initiated and grew their dividend between 1972 and 2012 returned an average of 9.5% per year. That compares to non-dividend stocks that returned a meager 1.6% per year over the same period. Thus, even with a higher net expense ratio of 0.35%, the ProShares S&P 500 Dividend Aristocrats ETF could be your best bet to guarantee positive 20-year rolling returns, inclusive of dividends.
