The S&P 500, held to maturity

Financial markets are, at times, thankless. The speed at which new information is incorporated exceeds our ability to process it, and the resulting volatility investors face is often orders of magnitude greater than what they're comfortable with in order to stick to a long-term plan.

The temptation is to move to “safer” investments (real estate, portfolios of bonds held directly to maturity, etc.) that, even in a very negative moment, should guarantee a cash flow. But what does the stock market have to say about it?

If you had invested US$100 in the S&P 500 in 2001, you would have earned US$62 in dividends alone from then until now. In addition—with the 2008 crisis in between—those 100 turned into 298 thanks to the higher value of the underlying companies.

Volatility often clouds our understanding that companies also distribute cash flows. In fact, for the U.S. stock market, in 2022 dividends grew more than 11% (more than 4 points above inflation), despite the 20% decline the index suffered.

Never more relevant than the advice of Nobel laureate Richard Thaler: “you should invest in a diversified portfolio, buy the newspaper every week and read only the sports section.”

This column was originally published in El Mercurio Inversiones [LINK] on 04–04–2023