3 Reasons Investors Shouldn’t Be Worried About Interest Rates: Part 2

3 Reasons Investors Shouldn’t Be Worried About Interest Rates: Part 2

Posted On June 25, 2021 12:47 pm

In part 1 of this series we looked at why a strong economy causing interest rates to rise is not something to be feared by investors, but celebrated.

Now let’s take a look at the most important reason that rising rates don’t pose a threat to any prudently risk-managed portfolio.

In fact, I’ll show you how to set yourself up for maximum profits during the economic boom time we’re likely to see over the coming years.

Reason 3: Valuation Risk Is Always Within Your Control

Yes, the market is highly overvalued. In fact, other than the tech bubble, this is the most expensive stocks have been in history.

However, that doesn’t mean another lost decade is likely.

S&P 500 2023 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

S&P 500 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

Three-year returns might indeed suck. And returns over the next decade are almost certainly going to disappoint anyone who thought that 14% annual returns over the last 10 years were the “new normal”.

But the only ones that truly should quake in terror at the prospect of rising interest rates are those paying absurd valuations for companies.

Ark Innovation ETF Valuations

(Source: Morningstar)

Cathie Woods at ARKK is paying 104X forward earnings for companies growing under 18%.

That’s a PEG of 5.9, which means a 91% probability that anyone buying ARKK is in for a very painful few decades, assuming those companies grow as expected.

By comparison, the average growth fund’s 36X forward earnings and 2.5 PEG seem almost cheap.

But here’s the reason that I am not losing a wink of sleep over my portfolio’s prospects over the next decade when interest rates are expected to rise by 1% to 1.5%.

Dividend Kings Phoenix Portfolio Fundamentals

(Source: Morningstar)

Our portfolio offers the 15% hyper-growth that Cathie Woods and private equity seek, which can double your money every 5 years.

We also have a 3.4% yield, wh is almost 1.5% higher than the dividend aristocrats and more than double the yield of the S&P 500 (and 4X that of the Nasdaq).

More importantly at 16.5X forward earnings, this is hyper-growth at a reasonable price.

Dividend Kings Phoenix: A Great Blue-Chip Stock Picking System

Metric US Stocks Phoenix
Positive Over The Last 10 Years 42% 99%
Outperformed Market 36% 52%
Bankruptcies Over The Last 10 Years 11% 0%
Permanent 70+% Catastrophic Decline 40% 0%

(Sources: Morningstar, JPMorgan Asset Management, Seeking Alpha)

Our 188 fundamental metric safety and quality model has been proven to accurately forecast dividend cuts in even the most extreme economic conditions.

And it allows us to pick blue chips whose returns are far superior to the average company.

It’s not magic, its just math, and at Dividend Kings, our math is very accurate, resulting in exceptional long-term results.

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About author

Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I'm a proud co-founder of Wide Moat Research, Dividend Kings, and the Intelligent Dividend Investor. My work can be found on Seeking Alpha, Dividend Kings, iREIT, and the Intelligent Dividend Investor. My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives. With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams and achieving long-term financial goals.

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