Lower Risk = Higher Investment Profits

Written by The Dividend Guy on July 25, 2008

Managing Risk

(This article originally appeared on The DIV-Net on July 15, 2008)Historically, a dividend based portfolio has proven to be less risky than alternative investment strategies. The caveat of course is that your portfolio is structured properly, you are well diversified, and you keep your fees super-low. Take the S&P Dividend Aristocrats for example. As highlighted in a 2005 article at IndexUniverse.com, “The Dividend Aristocrats Index has outperformed the S&P 500, S&P 500 Equal Weight and S&P 500 Barra Value indexes over the past three, five and ten-year periods - with less risk.” The bonus is that over the 10 years prior, the Aristocrats has beaten the S&P 500 Index by 2.4%.

There is also evidence that other conservative investment strategies that are less risky have lead to increased profits. In an article at MarketWatch by Mark Hulbert, he presents his research that shows that those newsletters with less risky investment strategies have shown better results. The chart below highlights his research:

Investment Risk versus Reward

What does this information mean to us as dividend investors? It means that investing in a dividend strategy, which research has shown to be less risky, presents opportunities for higher investment profits if history repeats itself. Companies that consistently increase their dividends, like the Dividend Aristocrats, can provide higher profits if you are patient and let the strategy do its work.


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