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Beating the market with $VOO πŸ‘€
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😎 My pick for "by the dip"

I have a 15 stocks in my portfolio which is designed to give me cash flow, cash flow growth, and capital gains. I get $1,616.41 per month on average in the form of dividends at a 5.71% dividend yield. I also have over 9% dividend CAGR and my portfolio is close to beta. My entire strategy has been revolving around higher cash flow and returns similar to beta.

When β€œBuy the dipβ€œ was announced an obvious candidate was $U for me, as I have been bullish on $U. But, them having a pinpointer issue, laying off staff, and growth stocks getting hammered due to an increase in interest rate might not be the best pick for the next 12 months. $COST was another one, but slowing down of retail sales seems to be of concern too. I had a reason for every one of my 14 other stocks to not pitch. Now enters my obvious pick $VOO - if you can't beat them, join them.

So, my plan is to beat the market returns with $VOO over the next 12 months.

πŸ‘» $VOO

$VOO is an ETF by Vanguard that tracks the performance of a benchmark index that measures the investment return of large-capitalization stocks. It has 506 stocks that it tracks. I like $VOO for a current scenario for the following reasons:


  • πŸ‡ΊπŸ‡Έ In America we trust: Although the economy might be slowing, America and its businesses have proven they can wither the storm. $VOO can be a good way to stay invested, decrease your cost basis, and store value during a recession.

  • 😴 Gives you peaceful sleep: The biggest thing in life is peace of mind. With the beta return, you will have peace of mind and can sleep peacefully.

🧠 Strategy

My plan is to reduce the risk as much as possible, and beat the index - try to be in the top 10% or top 5%. But, wait, how can I beat the market return when I am investing in $VOO? Here is my strategy which is based on buying $VOO every day for a year experiment.

  • 🏦 50% Lump sum: Use 50% of the amount allocated to buy $VOO. We are already down 20%, and SP500's PE ratio at 19 has started to divert towards its mean and median from 36 in 2021. This is a golden opportunity to buy $VOO at a discounted price.

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  • πŸ€— 50% DCA: Based on the market condition, use the 50% of the allocated amount to average down and increase the gains.

The stock can move in 3 directions - up, down, or sideways. Here is what to do during all the movements:

  • πŸ”Ό Up: If there is a miraculous recovery to the economy, $VOO will recover too and start yielding positive returns. In this scenario, you don't have to do anything. You'll make a profit and get beta returns (likely better than 85% of investors).

  • ▢️ Sideways: If there is no change to the economy and $VOO moves sideways, you are not making any losses and still getting beta returns.

  • πŸ”½ Down: The most likely cause, is downwards movement. As predicted, as the recession starts looming, you can DCA and start buying the dip. As proven from my experiment, DCA during the market downturn will give you a better return. So, you are more likely to beat the market.

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Now let's see why $VOO might perform better than other stocks.

🌏 Current scenarios
According to major institutions, the odds of the U.S. economy falling into a recession have increased significantly. Goldman forecasted a 48% chance the U.S. economy will fall into recession by the next two years. While TD Securities expects 50% for the same and JPM expects an 85% chance. These are main reasons for it are:

⛽️ Rising gas prices
A combination of lower production of gas during COVID-19, the Colonial Pipeline cyberattack (causing it to go offline for six days), and the Russia-Ukraine war compounded the issues and decreased the supply of gas prices. High demand for crude oil and low supply pushed gas prices upward this year.

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The average gas price has shot up to $4.66, nearly double what it was before the pandemic.

βŒ›οΈ Slowing down economy
The higher gas price drive up the cost of every major part of the economy like production of goods, and transportation of goods. It leads to goods and services being expensive - consumers will be forced to cut their consumption resulting in a slowing down of the economy. Retail sales have already decreased by 0.3% in May, the demand for real estate is decreasing too, startups fundings has decreased by 23% in comparison to the last 3 months, demand for commodities like copper is down by 20%, long term interest rates have fallen below short term interest rates for bonds and consumer price has increased at their fastest pace in one last 40 years.

The future seems bleak in short term, and all of the sectors with the expectation of energy might experience a drop in stock price. Growth stocks are killed by an increase in interest rate (in an attempt to decrease inflation).

As investing in $VOO combined with my strategy (lumpsum and DCA based on market movement) historically returns greater return than market and other stocks (that will be crushed by macro economic factors), I think $VOO will be the best investment for the next 12 months. 😎
CNBC
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