Title: Unlocking the Power of American Markets: A Divide-Boosting Opportunity
Title: Capitalize on America's Lead with CEFs: Why US Stocks are Crushing the Global Market
So, you've been noticing all the buzz around the US economy and stock market leading the world, huh? Well, buckle up, because we're about to delve into why that's the case and how you, as an income investor, can leverage the situation to boost your dividends and shoot for 10% annualized returns. And guess what? We're talking about closed-end funds (CEFs), those bad boys that yield north of 9% - yes, you heard it right.
First off, let's give a shout-out to America's exceptionalism. Yeah, I know, it's a buzzword, but it's here for a reason. The S&P 500, the go-to index fund (seen in orange below), has been on a roll, outperforming its global cousins from 2011 onwards. While the Vanguard Total International Stock ETF (VXUS) has a modest 82.6% increase, the S&P 500 is nearly 500% up, that's not a typo, nearly 500% in the last decade.
So, why the big gap? Well, it's like this: you're taking on currency exposure, volatility, and other risks for an annualized return of 4.4%. That's less than some high-yield savings accounts, not a great deal, I'd say. But US stocks, they just keep climbing, and our portfolio of high-yield CEFs has been reaping the benefits for years.
Now, you're probably wondering, what's driving these gains? Well, I'm glad you asked.
Innovation, Efficiency, and Capital Move the US Ahead
Articles on American financial exceptionalism are popping up all over the place, from mainstream publications like Fortune, to heavyweight investors like Ray Dalio's Bridgewater Associates, who are saying that America's lead is likely to continue. Why? Because, simply put, US companies are more innovative, more efficiently run, better at deploying capital, and have a more shareholder-friendly orientation than their developed-world peers.
But let's break it down:
US-Stock Outperformance
The S&P 500 has been on a tear, soaring nearly 500% since 2011, crushing other global markets. In fact, Vanguard's Total International Stock ETF, which invests in the world's major stock markets except for America, has only managed an 82.6% increase in the same time frame.
So, what gives? Well, US stocks offer higher returns, less risk, and a more stable economic backdrop. That's not just a CEF Insider opinion; it's been playing out in the market for years.
Incorporating CEFs
But how can we, as investors, capitalize on this trend? Enter closed-end funds (CEFs). Closed-end funds are types of investment companies that issue a fixed number of shares and trade on exchanges like stocks. And many of these CEFs yield north of 9%, allowing income investors to boost their dividends and aim for 10% annualized returns.
CEFs: The Powerhouse Investment Strategy
Here's how it works: CEFs can invest in things like high-yield bonds, preferred stocks, real estate investment trusts (REITs), and other income-focused assets. And because CEFs are closed to new investors once they sell out, they're sometimes able to trade at discounts to their net asset value (NAV), which can provide an attractive entry point for investors.
The Top 4 Fundamental Reasons Why Stocks Rise Over Time
Rising Earnings to Shareholders
The first reason US stocks have outperformed other markets is due to companies' profitability. Over the years, US firms have simply out-earned their counterparts globally. Companies like Apple (AAPL) have been generating solid earnings that help justify their high stock prices. For instance, if Apple continues to earn $6.55 per share, you can probably expect its share price to rise organically by 2.7% per year.
Inflation - The Good Kind
Professional investors often tout stocks as an inflation hedge, and it's easy to see why. Inflation causes companies' revenue to increase, even if their profits remain the same. That's because as prices rise, an increased revenue is still accrued to shareholders. For example, if a company's revenue grows due to inflation, shareholders will receive their pro-rata share of that revenue.
Risk Premiums and Interest Rates
Stocks come with risk, and investors expect to be compensated for it. On average, the "risk premium" for common stocks is about 2%, which is the additional return investors usually demand to compensate for the volatility in the stock market.
Productivity Growth
Finally, we can't forget productivity growth. Over the long term, productivity growth is driven by factors such as technological innovation, a better-trained workforce, and population growth. And for the US, which is a top innovator in the global tech space, productivity growth should help drive stock prices higher.
By incorporating all these factors, investors can see that stocks are likely to rise by about 9.8% per year on average over the long haul.
And guess what? US stocks have been delivering close to that, with the S&P 500 returning 10.4% annually since the late 1980s.
So, yes, we can expect stocks to continue rising in the future, and potentially at a rate of 10% annually. By investing in CEFs, like the Adams Diversified Equity Fund (ADX), which yield around 9% and focus on US equities, we can secure fat distributions while waiting for markets to turn around.
In conclusion, the US economy and stock market continue to lead the world due to factors such as innovation, efficiency, capital movements, and a pro-business environment. By investing in a diversified portfolio of CEFs, with a focus on US equities, income investors can capitalize on this trend, securing high dividends and potentially shooting for 10% annualized returns.
- As a retirement income strategy, consider investing in high-yield closed-end funds (CEFs) that focus on US stocks. These funds offer dividends north of 9%, potentially helping income investors aim for 10% annualized returns.
- Inflation can actually benefit stock investors, as it causes companies' revenues to increase, leading to a pro-rata share of that revenue for shareholders. This makes stocks a potential hedge against inflation.
- Dividend investing through closed-end funds (CEFs) can be particularly advantageous during periods of inflation, as many CEFs invest in high-yield bonds, preferred stocks, and real estate investment trusts (REITs), providing income investors with a stable source of dividends.
