Potential investors have expressed interest in the “small dogs of the Dow” strategy. While this approach offers advantages in simplicity and historical returns, it is important for individuals to understand both perspectives on this and alternative options. Here are a few key points regarding risks, performance, implementation and other considerations:
- Like all stock market investing, there are inherent risks to consider such as general market fluctuations, concentration in a small number of securities, reliance on dividend yields alone without regard for other factors, and changes in sector/industry returns that could impact portfolio results.
- Although backtested performance has outpaced the broader Dow Jones average, past returns do not guarantee comparable future outcomes. Markets and company fundamentals shift over time. For long-term goals, flexibility and diversification are prudent.
- Low-cost ETFs provide solid options for accessing the “small dogs” index without significant trading costs. However, individuals should understand underlying holdings, charges and fit within their preferred investment style/objectives.
- While the premise of focusing on higher-yielding, “undervalued” Dow stocks has validity, exclusivity to any single approach fails acknowledging diversity of views. Complementary allocations afford protection against unpredictable changes.
- Professional guidance enhances implementation, ongoing oversight and adaptation to evolving needs, market climates or preference changes over years/decades. Strict “set it and forget it” routines risk deviations.
Overall, the “small dogs” methodology carries value as one piece within a broader, comprehensively developed portfolio. But regular review of performance against alternatives, consideration of non-statistical priorities and openness to adjustments optimize prospects for each person according to their distinct outlooks and convictions. Does this help provide a balanced perspective on both risks and opportunities with this strategy? I’m happy to discuss any part of the overview further.