When Will the Bull Return?

Should I buy more shares of an investment in a bear market?

It is understandable that many investors don’t like to buy when the market is in bear territory. This has been true of every bear market. It feels right to sell, and that is the worst mistake. It also feels right to avoid buying. That, I believe, is the second worst mistake. I am frequently asked when to buy more of an investment. The answer is generally, “now is the best time.” However, that doesn’t mean I will buy everything this week or even next week.

A far better focus is to think about investments that are likely to perform well over time and that require minimum time for the investor. Some ETFs satisfy those two basic requirements. One ETF I often mention is the Vanguard High Dividend Yield ETF. The ticker symbol is VYM. I want to share six images from Seeking Alpha to help you understand why I recommend that you purchase more shares of VYM in the next three months. Another good choice is SCHD.

Picture Number One: Dividend Growth

Notice VYM has a history of dividend increases. During inflationary times, dividend growth is vital.

VYM has a good track record when it comes to dividend growth. Like many investments, it may seem that the dividend bounces up and down during the year. Don’t let that distract you from seeing the long-term trend. In the case of VYM, it is helpful to see the last ten years of growth.

Picture Number Two: Top Ten Investments

VYM has solid companies in the top ten. It is well-diversified with 446 holdings.

Because VYM focuses on large-cap, dividend-growth investments, you should recognize the top ten investments. Notice as well that the top ten make up 23.65% of the total dollars invested. This is actually quite low compared to other funds. For example, ETF SPY has 27.64% in the top ten.

ETF SCHD has 40.37% in the top ten. (I like SCHD as well but hold fewer shares of this less diversified fund.) You should also see industry diversification in the top ten. If you don’t understand the risks associated with more exposure to technology, financials, or healthcare companies.

Picture Number Three: AUM and QUANT

This data was downloaded from Seeking Alpha. It shows the top 20 large cap value ETFs.

Seeking Alpha’s QUANT score and the ranking of ETFs within a category helps separate the wheat from the chaff. In general, you want an ETF with billions of dollars in assets under management. You also want a QUANT score that is 4.50 or higher. Both VYM and SCHD satisfy these requirements. In addition both have rational expense ratios and sensible dividend yields. I don’t view VYM’s number ten ranking as a bad thing. There is greater risk with an ETF like EQRR because the fund is so small.

Picture Number Four: One Year Price Return

VYM versus the S&P 500 Index – One Year Price Return. VYM beats the index.

During a bear market, you can benefit from an investment that is not falling like the rest of the market. VYM, in comparison to SPY (SP500), has had far less price erosion. Dividend investors are far less likely to give into the short-term market pessimism than those who focus on high-growth investments.

Picture Number Five: One Year Price Return VYM and SCHD

The same images as number four, but with SCHD added. SCHD also beats the S&P 500.

One nice feature of Seeking Alpha is the ability to pick the investment you want to compare. In this case, I added SCHD to the mix. As you can see, both VYM and SCHD have out-performed the S&P 500 in the last year.

Picture Number Six: Total Ten-Year Returns

SCHD is the true winner for ten-year returns. It is a worthy addition to the diversified portfolio.

I need to be fair. If you take a long view, you will find that SPY (SP500TR S&P 500 Index Total Return) has out-performed VYM. However, SPY has not outperformed SCHD. That is why I hold shares of VYM and SCHD. Both have strengths, and together they make for a good base for long-term growth.

Full Disclosure

Cindie and I own 2,530 shares of VYM as a long-term investment. It is number one in our top ten investments. We have 375 shares of SCHD.