Another case for Indexing – Asset Class Returns in 2013

In reading My Own Advisor posts you know I’m following a two-pronged approach to build my retirement portfolio for financial independence:   I invest passively in the market (indexing) and I also buy and hold and hold blue-chip companies that have consistently rewarded investors (dividend investing).

In reading this post over at Canadian Capitalist recently I reflected upon my own portfolio and specifically how my small basket of U.S. blue-chip stocks might have fared against the Dow or S&P 500 index this past year.  Let’s look at some of the starting and finishing prices in 2013 for some popular blue-chip U.S. stocks held by many dividend investors, including myself:

  • Coca-Cola (KO:US): started 2013 @ $37.60 and finished 2013 @ $41.31 for close to 10% gain not including dividends reinvested.
  • Johnson & Johnson (JNJ:US): started 2013 @ $70.84 and finished 2013 @ $91.59 for close to 30% gain not including dividends reinvested.
  • Wells Fargo (WFC:US): started 2013 @ $35.05 and finished 2013 @ $45.40 for close to 30% gain not including dividends reinvested.

Like Ram stated in his blogpost, for years, Canadian stocks outperformed international stocks.  Because of this, I’ve read about investors questioning the need to invest outside Canada at all, preferring to ride the coattails of our Canadian market only.  For investors who did that, they missed out on 30% gains in the U.S. market last year and solid stock price appreciations for Coca-Cola, Johnson & Johnson and Wells Fargo, if they held those stocks directly.  This small sample of U.S. stocks of mine didn’t overpower the index last year but they did help fuel it.

My lesson learned?

While I believe owning some U.S. blue-chip dividend paying stocks outright were great investments in 2013, it’s incredibly hard to argue against the awesome payback a low-cost U.S. indexed product provided investors last year and the simplicity of this approach for investors.

What’s your take on index investing?  Do you own indexed products?  Do you own stocks?   Where is your bias?

Post Comment