Following the adage that the stock market was overvalued if the dividend yield fell below 3% worked for over 100 years, as shown in the chart below. However, imagine if you had sold all of your stocks when the S&P yield went below 3% in the early 1990s.
(Click to Enlarge)
Source: www.multpl.com
From 1990 until Dec 23, 2010, the S&P 500 Total Return Index is up 457% for an annualized return of 8.52%. Stubbornly holding to old paradigms can be costly.
Market history is full of paradigms that held…until they didn’t. This is perhaps the biggest reason to use an adaptive approach to investing.
