Monday, 2 April 2012

Introducing The Dogs of The Dow Investment Strategy

Alistair-Leighton Investment Research
High yield investors are seeking a higher rate of return, but are also willing to accept a greater risk.  In fact, those investors who participant in high yield investing, are often referred to as risk tolerant. And, although the interest rate/dividends on stocks or bonds may differ, high yield investments will always involve comparatively higher risk; that is proportionate to the yield.

An important and popular investment strategy, that can be expected to maximize return without assuming  reckless risk (such as junk bonds), is known as The Dogs of the Dow.  This strategy is based on dividends rather than interest, and is often the preferred approach in a bear market.  This strategy involves splitting the investment capital, equally among the top ten highest dividend stocks of the Dow Jones Industrial Average (DJIA), which generally features the highest market performers.

Remarkably, this Dogs of the Dow approach, produced an 18 per cent compound return on investment, during a 25 year period.  These results can be compared to a container investment, or the average stock market return, during that period; of 12 to 15 per cent. A present value of $10,000 invested in 1975 would yield $625,000 in 1999.  This means that a retirement fund of roughly 17 per cent of income during those 25 years, would return a 25-year retirement payout near the original salary.  A variation known as the Dow 5 would return $840,000 during the same period.  Yet another variation known as the Foolish 4 would return $2.4 million.

Regardless of these excellent numbers, an investor must always remember that high yield always equates to high risk and should not be considered a safe investment opportunity. As well, at the end of each year and after the dividend payout, it is recommended that investors re-evaluated and adjusted their investments; as necessary.


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