Recession Proof US Shares worth researching Part 4: Back Testing


Recession Proof US Shares worth researching Part 4: Back Testing

Published Date: 2018-11-15 | Source: Share Picks USA | Author: Bruce Ingram | Comments

Recession Proof US Shares worth researching Part 4: Back Testing

Last week I decided to run a back test to see how the selection of recession proof stocks discussed in my previous 3 three articles would have performed over the last 20 years. I chose 20 years because it would cover the last 3 major market downturns 1998, 2002 and 2008. The test was run for the period of Jan 1998 to October 2018.

Part 1, 2 & 3 of this series can be found here in the #SharePicksUSA section:

I made the following assumptions for this test:

  • All 15 shares were equally weighted at 6.66% of the portfolio to begin with.
  • Dividends were reinvested.
  • No adjustments were made to the portfolio for the entire period.
  • I used the S&P500 index as a benchmark.

My main objective for a Recession Proof portfolio is:

  • Market value must decline less than the S&P 500 during market downturns so that I can SWAN (Sleep Well At Night)
  • Market value must equal or better the performance of the S&P 500 over the long term
  • Produce an increasing dividend income, even during market downturns

The results are as follows:

Performance during the last 3 significant market declines:

  • July to October 1998 The portfolio decline was 13.6% when the S&P dropped 15%
  • March 2000 to October 2002. The portfolio decline was 17.64% when the S&P 500 dropped nearly 45%
  • November 2007 to March 2009. The portfolio decline was 30.42% compared to the S&P500 drop of 51%

The dividends increased every year without any declines during the entire period. With an initial investment of $10,000 dividend for the first year were $1,900 and ended up at $12,016 in 2017.

Graph of the portfolio growth with an initial investment of $10,000 compared to the S&P500.

The portfolio grew from $10,000 to $73,532 The S&P500 grew to $40,520 during the same period.

Annual returns compared to S&P500 are as follows:

This test was simulated as a "Buy and Hold" portfolio, that is, there were no adjustments made during the 20 years of the simulation. As you can see this portfolio significantly outperformed the S&P500 during the market downturns over the last 20 years. This portfolio had a Beta of 0.64 compared to the S&P500.

Please note the above graphs like all back testing, suffer from selection bias. Had I set the start date in the middle of the 2008 crash the S&P500 would have gained more than the portfolio. I selected these dates to illustrate that Dividend Growth Investing portfolios ride through market declines with less fluctuations than the total market. Past performance is not a guarantee of future returns and data and other errors may exist.

Disclaimer: Please note that I am not a Registered Financial Planner. The articles I write are based on my own personal research and for my own use and is not to be construed as financial planning advice. At all times readers are urged to exercise caution when investing in any financial instruments, to do their own research

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