Introduction

With this article I am going to present several ways that investors, especially retired investors, can beat the market without fail. However, what I will be presenting may not be what you are expecting, particularly if you have a narrow notion of what beating the market means. In other words, one of my primary objectives will be to expand your mind and attitudes regarding what investment performance is truly all about.

Moreover, this speaks to one of my biggest pet peeves as a financial professional, which is listening to the common refrain that most active managers can’t beat the market (S&P 500). The reason this aggravates me so much, is that I have never found it practical or useful as a professional manager to even try to “beat the market.” Investors are unique, and as such, possess investment objectives that are also unique to their own goals, objectives and risk tolerances.

Simply stated, investing is not a one-size-fits-all. Therefore, it has always made more sense – to me at least – to manage portfolios that were designed to meet the individual client’s specific goals, objectives and risk tolerances. In other words, I prefer to design portfolios that get the job done and often without regard to short-term price volatility.

More to the point, the market (S&P 500) simply may not be a suitable investment for every client. On the other hand, this does not simultaneously suggest that those investors should not invest in stocks at all. Instead, investors might be better served to build a portfolio of individual stocks that meets their specific goals, objectives and risk tolerances. A good example could be a portfolio of blue-chip dividend aristocrats with a long history of increasing their dividend every year. In contrast, the S&P 500 would also include stocks that don’t even pay a dividend.

As I will illustrate later in the article, and in the accompanying video, a quality dividend growth stock with a starting current yield that is higher than the S&P 500 and at the same time fairly valued will produce more dividend income than the market the majority of time, if not over every timeframe. In other words, it will beat the market based on total income produced, and is highly likely to meet or beat it on a capital appreciation basis over the long run as well. Superior businesses bought at fair value will generally produce above-average (the market is an average) results over the long run.