The Balloon of Inflation

Dear valued client,

Just a heads up… I will be traveling to Italy from July 15th to July 30th. I will still have access to phone calls, messages, and emails (if you don’t have an iPhone and wish to get in touch with me, I would suggest using WhatsApp). Should you reach out to me, it may take longer to get back to you given the time difference. 

Let’s start with positive news from this week; the WSJ reported that dividend payouts from large, American corporations continued to increase this quarter despite less-than-ideal market conditions. The article reads, “The companies in the S&P 500 paid out a record $140.6 billion in dividends in the most recent quarter. That’s up from $137.6 billion in the first three months of the year and $123.4 billion in the same quarter last year.” Dividends are payments made by companies to their shareholders, as a result of excess cash, based on the number of shares they own. Excluding a slight blip in 2020, annual dividend payouts have reached new highs every year for a decade. Investors should be optimistic that companies are still sitting on enough excess money to pay out higher dividends despite a rocky market, inflationary pressure, and supply chain issues. 

Here are some examples of ‘Dividend Kings;’ companies that have increased their dividends for 50 consecutive years:

1. Coca Cola 
2. Lowe’s
3. Proctor and Gamble 
4. Johnson & Johnson

On a less optimistic note, American inflation numbers for the month of June came in this week and… another slight increase. Inflation in the U.S. currently sits at 9.1%, its highest rate in nearly 40 years. The Fed will undoubtedly take aggressive measures in their interest rate hikes in their attempt to flush out excess liquidity in the economy and bring prices under control. Canadian inflation currently sits at 7.73%. Figures for the month of June will be released next week. 

I came across statistics this week that perfectly illustrates the power of the Buy and Hold strategy I’ve been preaching. Nobody can predict short-term fluctuations in the market. Much more money is lost in trying to predict market declines than in the actual declines themselves. 

The stats display average annual returns from an index of large American and Canadian companies over the past 20 years. 

Rate of return if:

1. You stayed invested every single day over 20 years: 8.08%. 
2. You were not invested for the 10 best-performing days over 20 years: 4.23%. (Think about that… without the best 10-day market outputs, the rate of return is halved.) 
3. You were not invested for the 20 best-performing days over 20 years: 2.05%. 
4. You were not invested for the 30 best-performing days over 20 years: 0.23%. 
5. You were not invested for the 40 best-performing days over 20 years: -1.24%. 

Keep the long-term vision and have your money work for you as efficiently as possible. 

Have a terrific weekend,

PW