Jim Niedelman:
We’re here with David Nelson of Nelson Corp Wealth Management. Great to see you again as always, David.

David Nelson:
Appreciate it.

Jim Niedelman:
We’ve talked a lot in the past about owning stocks and the risks and rewards associated with that.

David Nelson:
Sure. Sure.

Jim Niedelman:
Can you take us behind the scenes a little bit? What goes into driving those returns that investors want to see?

David Nelson:
Yes, so it basically boils down to three different items and I think we’ll have the slide up here. First of which is, I think probably the most obvious, and that is the dividend. So most stocks will pay a dividend and so, again, that’s fairly predictable as far as that you’re going to get as far as on a ongoing basis.

David Nelson:
Number two is going to be the earnings per share. Earnings per share is looking at the growth as far as that you’re going to get as far as on the shares.

David Nelson:
And then the final one is the change in value. So the valuation, this is more of a sentiment type indicator and if you put the three of those together, you come up, what we call the total return, and that’s really key. That’s what people are interested in. You know, how much did I make as far as on my investments overall. And that’s the dividend and everything combined.

Jim Niedelman:
When you look at the actual returns, how do these components work together to come up with that number.

David Nelson:
Yes, it’s excellent point as well. So slide two, I think will show a nice visual here over a period of time. I’ll start on the right here and we’re looking at 1926 to 2018, and what we find is that the red is the dividend and the blue is going to be the earnings. Those are the biggest components as far as that come into play and the market has averaged 9.9% since 1926 to current.

David Nelson:
What’s interesting and what we tried to pull together here is that every decade we see a pretty dramatic difference as far as returns, as we go along here. We go back to the great depression, negative rates of return, negative 1% for the decade of 1999 through 2009. These are very dramatic differences as far as what takes place, again, and it’s all basically coming back to how are we making the money? Is it coming in the form of dividend growth or is it going to come in in the form of a PE change as far as during that particular period.

Jim Niedelman:
Certainly useful information. How can people at home apply this themselves if they want to invest?

David Nelson:
This is the key, and again, this type of information when individuals are thinking about tomorrows, I think probably one of the most crucial things in the patterns that we see as far as on here, is that when you have a good decade, you generally are going to follow it up with a bad decade. So what we want is we don’t want heroes at this point in time. We’ve had a really good run here over the last decade, a little over a decade, and we don’t want to give that money back. So, the predictable part is the dividend for most companies. The other is going to be very subjective. And again, I think the rule of thumb is to look in the rear view mirror as far as what’s taken place. That’s generally a pretty good indicator as far as looking forward as far as what’s gonna take place and it’s this effect. It’s not going to be, it’s been great, so it’ll continue to be great. Generally speaking, if you have a good decade, you’re going to follow up the following decade, not so good.

Jim Niedelman:
Managing those cycles, always the key.

David Nelson:
Exactly. Very important.

Jim Niedelman:
David Nelson with Nelson Corp Wealth Management, thanks for your time.

David Nelson:
Thank you. Appreciate it.

Jim Niedelman:
Great advice, and of course, we have all this information available for you online at OurQuadCities.com.

Back to all TV & Radio