Build The Ultimate Sleep Well At Night Retirement Portfolio With These 15 High-Yield Blue-Chips (2024)

(Source: Imgflip)

Dividend cuts and high volatility during bear markets are understandably two chief concerns for retirees trusting their portfolios to funds a comfortable retirement.

Through the end of June 773 companies, about 20% of all those that pay either special or regular dividends, have cut or suspended dividends, including more than 60 in the S&P 500.

Meanwhile, volatility, as measured by the VIX, and represents the monthly volatility priced into options contracts, set a record back in March at 82, and remains well above its 19-year average since 1993, the year it was created.

(Source: Ycharts)

Since 1980 JPMorgan Asset Management reports that average peak intra-year declines have averaged 13.8% which is very similar to the 15% to 17% annual volatility the market has delivered over the decades.

S&P 500's Historical Annual Volatility

(Source: Ycharts)

Of course, in shorter periods, such as any given downturn, volatility can soar, hitting about 35% in the Great Recession.

(Source: Lance Roberts, Dalbar)

Over the last 30 years, Dalbar has studied retail investor returns and concluded that 75% of underperformance is a result of poor risk management and asset allocation.

Or to put another way, the wrong mix of stocks/bonds/cash for one's risk profile can turn you into a forced seller and market timer.

Which can lead to disastrous long-term returns, that underperform every single asset class, and kill your retirement goals.

Proper risk management and diversification, basically portfolio construction, are the biggest factor that typically decides whether you

• retire in splendor
• retire in comfort
• don't retire at all

Which brings us to the theme of today's article, low volatility stocks.

Low Volatility: Superior Returns + Less Stress = Greater Probability Of Achieving Your Financial Goals

Low volatility is one of the seven proven alpha-factor, aka "smart beta" or rules-based strategies that have beaten the market over time (something 95% of professional money managers can't do).

(Source: Ploutos)

Generally, the more volatile a stock is over time the lower its long-term returns.

Why?

• a 10% peak decline requires 11% recovery to get back to break even
• a 25% peak decline requires a 33% recovery
• a 50% decline requires a 100% recovery
• a 75% decline requires a 300% recovery
• a 90% decline requires a 900% recovery

Using the historical data from Ploutos, SA's alpha factor Guru, we can see that high volatility doesn't become an issue until we get to very high levels, specifically above 30% annually.

For context

• the average volatility of any given company over the last 15 years is 26%
• the average volatility of the dividend aristocrats is 22%
• the average volatility of the S&P 500 (a diversified 500 company index) is 15%

Should all investors avoid all high volatility companies, meaning those with historical volatility above 30%?

(Source: Imgflip)

The Most Volatile Stock On The Dividend Kings Master List Can Earn Investors Massive Returns...If You Harness Volatility For Your Benefit

(Source: F.A.S.T Graphs, FactSet Research)

Universal Display (OLED) is a 10/11 quality speculative SWAN stock (2.5% or less max portfolio risk cap recommendation) with 5/5 dividend safety. It's also the most volatile company on the Dividend Kings Master List of 440 companies with 59% average annual volatility over the last 15 years.

In other words, investors who own this hyper-growth tech stock, need to potentially be prepared for 60% price swings in any given year.

Those who bought following a 40% decline in late 2014, have seen 38% CAGR total returns since then.

Those who bought following a 53% decline from November 2017 to June 2018 potentially locked in similar total returns through 2022 if the company grows as expected and returns to its historical market-determined fair value of 64.

(Source: F.A.S.T Graphs, FactSet Research)

We own OLED as a tiny portion of the Dividend Kings' Phoenix Portfolio (0.3%) and I own it in my personal Phoenix retirement portfolio (2% position size).

But it's certainly not appropriate for everyone, especially conservative income investors who can't tolerate a lot of volatility.

So let me show you what happens if we construct a 15 stock ultra-low volatility portfolio consisting of 15 of the lowest volatility companies on the Master List. Note that I'm ignoring

• valuations (which you should NEVER actually do)
• prudent sector/industry risk cap recommendations (you should also never actually do this)

Since many of these companies are dangerously overvalued I will not be disclosing what they are.

The goal here is just to see what happens if we buy the lowest volatility companies with 15-year average volatilities of

These 15 companies average annual volatility that's lower than the S&P 500, which is remarkable given that owning

• 2 stocks reduce annual volatility by 46%
• 8 stocks by 81%
• 32 stocks by 95%

(Source: Fisher et al, The Journal Of Business)

Note that these 15 companies are VERY sector overweight towards lower volatility defensive sectors.

• 7 consumer staples (47%)
• 6 utilities (40%)
• 1 healthcare (7%)
• 1 consumer discretionary (7%)

I would NEVER actually recommend putting all your money into a portfolio that was 87% utilities and consumer staples.

But let's see what happens if someone had done so back in 1991.

Note that these companies are blue-chip aristocrats with an average

• quality score of 9.7/11 vs 9.6 average dividend aristocrats
• dividend safety score of 4.5/5 vs 4.5 average aristocrat
• average dividend growth streak of 38.3 years (so dividend aristocrats)
• 83% return on capital
• ROC in 90th industry percentile
• credit rating of "A" vs A- average aristocrat

Lowest Volatility Blue-Chips Since 1991 (Annual Rebalancing)

(Source: Portfolio Visualizer)

• yield in 1991: 4.33% (3.0% today)
• yield on cost today: 90.4%
• annual dividend growth: 11.1% CAGR

(Source: Portfolio Visualizer)

This max low volatility blue-chip portfolio

• fell 23% in the Great Recession vs 50% S&P 500 (57% not counting dividends)
• recovered 2 years and 10 months earlier to record highs
• fell 14% in the March crash vs 19.6% S&P 500
• delivered 23% better annual returns with 20% less annual volatility
• delivered 65% better excess total returns/negative volatility (Sortino Ratio = reward/risk ratio)

So now that we understand the power of a low volatility portfolio here's how to actually build the safest low volatility blue-chip portfolio using prudent risk-management rules that take into account

• valuation
• sector/industry risk caps

Building The Ultimate Safe Low Volatility High-Yield Blue-Chip Portfolio In Today's Market Bubble

(Source: Dividend Kings Company Screening Tool) green = potentially good buy or better, blue = potential reasonable buy

The first thing I do when screening for companies in the Dividend Kings screening tool is to select potential reasonable buys or potential good buys or better.

There are 164 such companies in the DK Master List that represent companies trading at fair value or better.

Next, let's apply quality and safety criteria such as quality scores of 8+/11 = above-average, blue-chip, SWAN, and Super SWAN.

• 137 companies remain

Next let's make sure that these are safe dividends, meaning 6% or lower dividend cut risk in this recession.

How do I estimate dividend cut risk in a recession? By using historical dividend cut data from every completed recession since 1945.

(Source: Moon Capital Management, NBER, Multipl.com)

I then use the current blue-chip consensus GDP decline estimate range (5% to 8%) to estimate that this recession is 4 to 6X as severe as the historical recession.

The Dividend Safety Score is not plucked from thin air but based on 18 safety metrics.

Dividend Kings Safety Model

• 126 companies remain

Next, I select for only investment-grade companies (for those that have a rating), which leaves 124 companies.

(Source: S&P)

Credit ratings are based on historical bond default data over 30 year time periods.

Investment-grade credit ratings imply about 7.6% or less long-term bond default risk.

And since bond defaults tend to lead to Ch 11 bankruptcies, in which stocks go to zero, there is a high correlation between credit ratings and long-term bankruptcy risk.

(Source: Dividend Kings Investment Decision Tool, S&P, University Of St. Petersberg)

None of the remaining 124 companies have a greater than 11% long-term bankruptcy risk, which represents our proxy for ultimate fundamental risk (permanent loss of 100% of your capital).

Finally, let's apply one more quality screen, dividend growth streaks.

(Source: imgflip)

Ben Graham considered a 20-year streak without a dividend cut to be a sign of a quality company. He didn't demand dividends rise every year, just remain dependable across the industry and economic cycle.

Thus I consider a 20-year streak to be the Graham standard of excellent quality.

Since our goal today is to find the safest low-volatility blue-chips we won't use a 20-year dividend growth streak cutoff, just 12 years.

Why 12 years?

Champions, Contenders & Challenger List Companies That Have Cut Dividends During The Pandemic

(Source: Justin Law)

Because my fellow Dividend King Justin Law, who maintains David Fish's CCC list, reports that 12 years is the major cutoff between dividend stocks that have cut or not cut during this recession.

In other words, we want to use the best empirical data to screen for quality, low volatility blue-chips, rather than arbitrarily selecting companies "by the seat of our pants."

(Source: imgflip)

• 59 companies remain

We're left with 59 companies with

• reasonable valuations or better
• above-average dividend safety (6% or less risk of a dividend cut in the worst recession in 75 years)
• above-average quality or better
• investment-grade credit ratings or implied credit ratings (bond market lends to them as if they were investment-grade due to strong balance sheets that meet credit rating guidelines)

Then I sort by 15-year average annual volatility.

(Source: Dividend Kings Company Screening Tool)

Now we have a list of safe low-volatility companies we can buy at fair value or better, with very low volatility.

BUT we can't ignore prudent diversification and risk-management guidelines such as the ones Dividend Kings uses to run all its portfolios (I use it for my retirement portfolio as well).

So here's how we can construct the safest concentrated low-volatility blue-chip portfolio, keeping in mind 20% sector caps, 15% industry caps, and 7% company caps.

The Safest Low-Volatility Blue-Chip Portfolio You Can Construct In This Market Bubble

This portfolio is as concentrated a low-volatility blue-chip portfolio that can be constructed while keeping in mind the three kinds of risks all investors face.

This portfolio is

• 20% financial
• 19% industrial
• 19% utilities
• 14% energy (only 5/5 safety midstream giants)
• 14% consumer staples (tobacco just 7%)
• 7% technology
• 7% communications

So we have a 7 sector diversified portfolio with a weighted 15-year average volatility of 17.6% at the company level.

In a moment I'll show how the power of diversification means that actual annual volatility for this portfolio is MUCH lower.

It also yields 4.7% which is 161% more than the S&P 500 and 114% more than the dividend aristocrats.

But first let's check this portfolio's fundamental quality and safety, to ensure that it truly represents a SWAN stock portfolio.

This Portfolio's Fundamental Stats

• Average quality score: 9.1/11 Blue-chip quality vs. 9.6 average dividend aristocrat
• Average dividend safety score: 4.6/5 very safe vs. 4.5 average dividend aristocrat (about 2.5% dividend cut risk in this recession)
• Average FCF payout ratio: 61% vs. 67% industry safety guideline
• Average debt/capital: 47% vs. 49% industry safety guideline vs. 37% S&P 500
• Average yield: 4.6% vs. 1.8% S&P 500 and 2.2% aristocrats
• Average discount to fair value: 13% vs. 37% overvalued S&P 500
• Average dividend growth streak: 29.3 years vs. 41.8 aristocrats, 20+ Graham Standard of Excellence
• Average 5-year dividend growth rate: 5.9% CAGR vs. 8.3% CAGR average aristocrat
• Average long-term analyst growth consensus: 5.8% CAGR vs. 6.4% CAGR S&P 500 (stable growth expectations)
• Average forward P/E: 13.4 vs. 22.5 S&P 500
• Average earnings yield (Chuck Carnevale's "essence of valuation": 7.5% vs. 4.4%% S&P 500
• Average PEG ratio: 2.67 vs. 3.07 historical vs. 2.65 S&P 500
• Average return on capital: 124% (79% Industry Percentile, High Quality/Wide Moat according to Joel Greenblatt)
• Average 13-year median ROC: 121% (relatively stable moat/quality)
• Average 5-year ROC trend: -2% CAGR (relatively stable moat/quality)
• Average S&P credit rating: A- vs. A- average aristocrat (5% 30-year bankruptcy risk)
• Average annual volatility: 18.6% vs. 22.5% average aristocrat (and 26% average Master List stock)
• Average market cap: $81 billion large-cap
• Average 5-year total return potential: 4.6% yield + 5.8% CAGR long-term growth + 2.8% CAGR valuation boost = 13.2% CAGR (6% to 20% CAGR with appropriate margin of error)
• Average Probability weighted expected average 5-year total return: 4% to 16% CAGR vs. 1% to 6% S&P 500
• Average Mid-Range Probability-Weighted Expected 5-Year Total Return: 9.9% CAGR vs. 3.8% S&P 500 (% more than S&P 500)

The fundamentals of these 15 blue-chips indicates that

• they offer a generous (4.6%, 4.7% weighted) yield
• a safe yield as seen by payout ratio, debt/capital, dividend growth streak and credit rating
• superior quality as seen by A- average credit rating (which S&P rates as "stable") equal to dividend aristocrats, far superior returns on capital vs industry peers, stable ROC's over time, and almost 30 year dividend growth streak
• Superior valuation vs S&P 500
• steady and strong 5.8% CAGR long-term growth consensus which is similar to the 5.9% CAGR growth rate of the last 5 years

Not surprisingly, when you combine superior yield, quality, good growth and good valuations you get expected superior total returns, of about 10% CAGR using the Dividend Kings probability-weighted model.

Probability-Weighted Expected Total Return Calculator

(Source: Dividend Kings Investment Decision Tool)

The S&P 500, even ignoring what Morningstar considers a 50% probability of corporate tax rates rising from 21% to 28% in 2021, has 3.8% CAGR probability-weighted expected returns over the next five years.

In other words, this collection of 15 high-yield low volatility blue-chips offers 164% superior expected long-term returns, in addition to a 4.7% yield that is extremely attractive for conservative income investors such as retirees.

Let's run this portfolio's average stats through the Dividend Kings Investment Decision, which I now use before making any investment decision for DK portfolios or my own retirement portfolio.

• preservation of capital: A- stable credit rating = 2.5% 30-year bankruptcy risk = 7/7
• valuation: 9.1/11 blue-chip quality = 14% margin of safety for a potentially good buy vs 14% quality-adjusted current discount = 3/4 potentially reasonable buy
• total return potential: 164% superior probability-weighted expected returns = 10/10

5-Year Dividend Return Calculator

(Source: Dividend Kings Investment Decision Tool)

This portfolio is expected to generate 27.3% dividend returns over the next 5-years, which is 150% more than the S&P 500. That earns a 10/10 on dividend return potential.

High-Yield/Low Volatility Portfolio Investment Decision Score

(Source: Dividend Kings Investment Decision Tool)

As far as the fundamental factors the prudent long-term income investors care about this portfolio represents a potentially excellent investment decision in today's low-yielding and highly overvalued market.

Ok, so the math on this portfolio looks fantastic, BUT models are one thing, and historical returns are another.

This portfolio is supposed to represent companies with a good probability of generating both generous safe income AND low volatility across the economic/market cycle.

So to confirm their quality and SWANiness let's look at how this portfolio would have performed over the long-term.

Because as Ben Graham famously said, over the long-term the market always correctly "weighs the substance of a company" correctly.

Historical Performance Of This High-Yield/Low Volatility Blue-Chip Portfolio

When backtesting a portfolio we need to keep in mind one very important factor, which is that the time horizon must be statistically significant.

The "long-term" is A LOT longer than most people realize.

(Source: Dividend Kings S&P 500 Valuation & Total Return Potential Tool)

Statistical significance isn't achieved until six years when about 54% of total returns are explained by fundamentals.

Not until 10 years can we say with 90% confidence that performance is a result of fundamentals rather than luck.

(Source: imgflip)

I'm not sure if Buffett is aware of this data, or if his almost 80 years of investing experience have merely caused him to come to the conclusion that it can take a decade for the market's irrational animal spirits to bow to the superiority of fundamentals and valuations.

The point is we need to make sure that any historical backrests are for at least 10 years, but the longer the better.

Also, keep in mind how I constructed this portfolio

• I did NOT pay attention to market timing
• I did NOT pay attention to historical returns
• I did pay attention to fundamental quality & safety
• I did pay attention to reasonable valuation
• I selected these 15 for their historically low volatility

In other words, I focused on what matters over the long-term and the goals of this portfolio. Then I trusted that superior quality, valuation, yield, and modest growth over time would result in superior absolute and volatility-adjusted returns.

High-Yield/Low Volatility Blue-Chip Portfolio Since January 1999 (Annual Rebalancing)

(Source: Portfolio Visualizer)

Notice a few important things

• S&P 500 was overvalued in 1999 and is incredibly overvalued today, so delivered slightly below 7% to 9% CAGR historical returns over 21 years (as expected)
• This portfolio delivered 10% CAGR 21-year returns (similar to 9.9% PWR expected in the next 5 years) with double-digit average rolling annual returns in every time period.
• 61% higher annual returns
• 19% less annual volatility
• 113% superior excess total returns/negative volatility (the only kind investors care about)

This is the ultimate vindication of the quality of these blue-chips as well as the facts and reasoning behind a long-term fundamental income growth approach to investing.

Why am I confident in the fundamentals + valuation + risk management approach Dividend Kings uses? Because of results like this.

Does that mean a 100% stock portfolio is right for everyone? Absolutely not.

Historical volatility data is statistical, thus never a guarantee of how a portfolio will performing any given downturn.

March 2020 Crash...When Low Volatility Turned Out To Be High Volatility

(Source: Ycharts)

(SPHD) is a high-yield/low-volatility ETF that literally rebalances twice a year for the lowest volatility high-yield companies in the S&P 500.

The dividend aristocrats (NOBL) are also historically lower volatility than the S&P 500 in MOST downturns.

In this recession, both proved to be higher volatility, with the low-volatility ETF actually falling a peak of 40%.

The same is true of the High-Yield/Low Volatility Portfolio I've built here today.

(Source: Portfolio Visualizer)

• During the last days of the tech bubble, this portfolio fell 25% over 8 months...
• and then began its 20 year period of significant outperformance
• it recovered record highs 2 years and 5 months earlier than the S&P 500 following the Great Recession...
• because its peak decline was 28% during the 2nd worst market crash in US history
• it fell 25% during the March crash, 5.5% worse than the S&P 500, though it outperformed SPHD, which is an appropriate benchmark, by 5%

Since 1999 this portfolio has experienced three bear markets, including one during the final days of the tech bubble mania.

You can bet that many investors owning these companies back then thought "I can't believe how terrible these companies are to be falling when tech stocks are roaring higher!"

Remember that short-term returns are NOT a function of fundamentals or portfolio design/skill, but of luck.

Only over the long-term do quality + fundamentals + prudent risk management dominate luck/sentiment.

What if a 28% peak decline is too much for you to personally stand?

How To Construct The Ultimate SWAN Portfolio With These 15 Blue-Chips

Stocks are naturally the most volatile asset since common equity shareholders face all the upside but also all the downside if a company fails.

Bonds are the least volatile asset class and risk-free sovereign debt tends to have a negative correlation to stocks.

Not all fixed-income assets are created equal, such a corporate debt, municipal debt, floating-rate debt, and preferred shares and convertible bonds.

Most fixed-income assets have lower beta but still positive correlations to stocks, while risk-free sovereign debt, such as US Treasuries, have negative correlations.

This is why, since 1945, in 92% of years stocks fall, bonds are stable or appreciate in value.

The 8% of time stocks and bonds fall in tandem tend to be periods of stagflation, which is why it's worth owning cash + bonds in the non-stock portion of your portfolio.

(Source: Duke University)

Since 1985 long US treasuries have been the best recession hedge among the four passive approaches Duke University studied.

They not just generated the best returns during a recession, but also the best positive returns across the entire economic cycle (86% of the time the US economy is growing).

Think about bonds in terms of protection, not yield. The stock market becomes more important when rates are on the floor but that doesn’t mean you can forsake bonds or cash altogether...

In a negative interest rate world, you have to change the way you think about bonds. Bonds have always acted as a shock absorber to stock market declines but this becomes even more important when the yield is more or less taken out of the equation.

Bonds can provide dry powder to rebalance into the stock market or pay for current expenses when the stock market inevitably goes through a nasty downturn. Bonds keep you in business even if they don’t provide high returns as they have in the past." - Ben Carlson (emphasis original)

Since 1976 99% of bond returns have been from income, not capital gains.

(Source: Barclays)

With yields now on the floor, future bond returns will almost certainly be a lot lower than they have been in recent decades.

But the role of cash + bonds is not likely to change, which is as a hedge against far more volatile stocks.

In other words, the role of bonds is about protecting yourself from becoming a forced seller, for either financial or emotional reasons, during bear markets.

What is a prudent asset allocation in terms of stocks/bonds/cash in today's low/negative rate world?

Jeremy Siegel, professor of finance at the University of Pennsylvania’s Wharton School, recommends a 75/25 stock/bond portfolio for most people.

We believe that the old 60/40 model just won’t be able to cut it anymore,” Siegel, who is also a senior investment strategy advisor at WisdomTree, said Monday on CNBC’s “ETF Edge.”

“This environment of low-interest rates is not going to change,” Siegel said, noting that the dividend yield on the S&P 500 is higher than the U.S. 10-year Treasury’s 1.5% yield. “How is [that] ... going to give you enough income?..

“That’s why we recommend 75/25 as the equity/fixed-income allocation,” he said, adding that it “would be the best way for those approaching retirement to establish their assets to get enough income and gains so they can maintain spending through retirement.” - CNBC

Professor Jeremy Siegel considers 75/25 the new 60/40, and as I'll now show, you can indeed achieve similar long-term volatility as a 60/40 with a properly constructed 75/25 stock/bond portfolio.

I'm using (BIL) as the cash equivalent ETF but today you should NOT own this ETF due to its current yield being slightly negative.

(SPTL) is the long duration US Treasury equivalent which is still fine to own though (EDV) is a superior recession hedge due to longer duration (higher interest rate risk but higher hedging power).

(VGSH) or (SCHO) are the cash equivalent ETFs I'd recommend today.

The reason for using BIL and SPTL is that they existed in January 2008 allowing us to backtest and thus stress test the risk-management/asset allocation of any portfolio during the 2nd worst market crash in US history.

75/25 Balanced Version Of The High-Yield/Low Volatility Blue-Chip Portfolio

(Source: Portfolio Visualizer)

If your risk-management strategy did well in the Financial Crisis it's reasonable to assume it will do well in nearly any economic/market crisis.

So how did a 75/25 version of the High-Yield/Low Volatility Blue-Chip portfolio perform vs a 60/40 stock/bond portfolio that is the default option for many retirees?

Balanced 75/25 High-Yield/Low Volatility Blue-Chip Portfolio

(Source: Portfolio Visualizer)

• despite being 15% more in stocks, this portfolio was 10% less volatile over the last 12 years
• it delivered 9% better annual returns
• it fell 37% less during the Great Recession
• 21% better negative volatility adjusted excess total returns (Sortino Ratio = reward/risk)

(Source: Portfolio Visualizer)

• Following the Great Recession, this portfolio recovered new record highs 1 year and 9 months faster than 60/40
• it fell 4% more in the March crash but 9% less than 100% stock version of High-yield/low volatility blue-chip portfolio
• has not suffered a non-recessionary correction in 12 years

The role of cash/bonds in this portfolio helped to minimize peak declines by 9% in March and helped this portfolio recover post-Finanical Crisis after just 23 months, compared to 34 months for a 60/40 balanced portfolio.

That difference of 21 months could have been the difference between becoming a forced seller of objectively superior quality high-yield blue-chips (21 years of market returns are selcom wrong) at low valuations.

BUT what if you don't care as much about total returns and are mainly looking to sleep well at night with decent returns but the least possible volatility (the purpose of this article?)

Then let's try one more portfolio, from the perspective of matching the 60/40 portfolio's total returns but achieving the minimum possible volatility during the Great Recession.

The Least Volatile Way To Match A 60/40 Portfolio's Long-Term Returns

(Source: Portfolio Visualizer)

This is the most conservative portfolio I can recommend right now because future bond returns are likely to be on the order of 1% to 2% CAGR.

The Congressional Budget Office's just revised 2030 forecast shows that 10-year yields are expected to return to 2.6%, similar to the blue-chip economist consensus estimate, by 2030.

Low bond yields are expected to remain through 2025 however, meaning that a 50/50 balanced High-Yield/Low Volatility Blue-Chip Portfolio is likely to deliver

• about 5% CAGR probability-weighted returns from the stock portion of the portfolio
• about 0.5% to 1% CAGR total returns from bonds
• total weighted probability-weighted return about 5.5% to 6% CAGR

A 50/50 version of this portfolio generates a weighted yield of

• SPTL 30-day yield of 1.3% =.33%
• VGSH 30-year yield of .14% = 0.03%
• Portfolio: 4.7% yield = 2.35%
• Total weighted-yield 2.7%
• 60/40 portfolio yields: 1.6%

Keep in mind that bonds and the S&P 500 will likely deliver weaker results in the coming years so a 60/40 portfolio, which yields 1.6% today, will also likely deliver weaker returns than it has compared to the last 12 years.

But let's take a look at how a 50/50 stock/bond version of the High-Yield/Low Volatility Blue-Chip Portfolio handled the Great Recession crash when the S&P 500 plunged 57% at its peak (50% including dividends).

Balanced 50/50 High-Yield/Low Volatility Blue-Chip Portfolio Since January 2008 (Annual Rebalancing)

(Source: Portfolio Visualizer)

Would you sacrifice 4% annual returns in exchange for a 38% lower annual volatility and a 66% lower peak decline during the Great Recession?

That is the trade-off that being this conservative with your savings can generate.

6.8% annual returns are still good, as long as your portfolio is large enough to meet your personal needs in retirement. And take a look at how little volatility such a blue-chip/cash/bond allocation can deliver.

(Source: Portfolio Visualizer)

A 4.4% decline was the worst year for this portfolio in the last 12 years.

(Source: Portfolio Visualizer)

This portfolio delivered rock steady 8% average annual rolling returns which are the S&P 500's historical mid-range (7% to 9% CAGR).

But take a look at how little volatility it suffered.

(Source: Portfolio Visualizer)

This portfolio hasn't suffered a 20% bear market in 12 years.

It's so conservative and so low volatility (yet yields 1.1% more than a 60/40 portfolio) that even a 90% market crash as seen in the Great Depression would be unlikely to result in a 20% peak decline.

Is it likely to deliver 7% CAGR total returns in the future? No, as I just calculated probability-weighted expected returns are 5.5% to 6% CAGR.

In 2019 this portfolio delivered 16.5% total returns or more than triple the average college endowment.

From 2009 to 2019 the average endowment, which is invested in a complex mix of hedge funds, private equity, and other high fee alternatives, achieved 8.4% CAGR total returns.

Most of the time, meaning outside of 2019's strong year for endowments this 50/50 balanced High-Yield/Low Volatility Blue-Chip Portfolio was actually outperforming college endowments. Endowments that are generally run by a large group of professional asset managers using extremely complex and high fee strategies.

What it takes a large group of professional asset managers a full year to accomplish can essentially be replicated in an hour using extremely simple strategies such as

• high-quality, low volatility blue-chip stocks
• cash equivalent (US T-bill ETF)
• long-duration US treasury bonds

(Source: National Administration Of State Retirement Administrators)

We can also accomplish similar probability-weighted returns as what state pension funds are assuming (and often not achieving).

Remember that the 75/25 version of the High-Yield/Low Volatility Blue-Chip Portfolio has much stronger probability-weighted expected returns.

• 7.4% CAGR from the stock portion of the portfolio
• 0.25% to 0.5% CAGR from bond/cash allocation
• 7.65% CAGR to 7.9% CAGR weighted probability weighted-return over the long-term which matches what most pension funds are targeting
• 3.7% weighted yield (vs 1.6% 60/40 portfolio)

Bottom Line: Even In A Crazy Market Bubble, Safe & Prudent Long-Term Investments Are Always Available

Am I saying that these portfolios are perfect for everyone?

No. I'm saying that the method used to create them in a methodical, disciplined, and evidence-based manner is the precise kind of "reasoning" that Warren Buffett says is critical to long-term investing success.

(Source: imgflip)

If you apply a similar strategy to risk-management, prudent asset allocation, and diversification as I just did in building the High-Yield/Low Volatility Blue-Chip portfolios as I did in this article, then sleeping well at night is easy.

That's regardless of what happens next with the economy or stock market.

Today ED, DUK, DEO, UGI, T, MO, AROW, TRV, TRP, CB, LMT, RTX, IBM, EPD, and GPC represent

• the least volatile high-yield blue-chips that can be bought at reasonable to attractive valuations
• together they create a top-quality high-yield/low volatility portfolio that yields 4.7% and is expected to return about 10% CAGR over the next five years
• combined with a prudent allocation to cash/risk-free bonds these portfolios can deliver superior income and returns relative to a 60/40 portfolio and even most college endowments and state pension funds

I hope this article has been useful to you, not just offering 15 prudent and actionable high-yield/low volatility stocks to consider.

More importantly, the methodical and evidence-based approach to selecting these blue-chips and constructing a bunker, SWAN retirement portfolio around them, is exactly what's needed in these uncertain times.

(Source: imgflip)

There is no magic to achieving your long-term financial goals with the stock and bond market. All that's required is having the right

• facts
• reasoning
• risk-management

That's what I've dedicated my second career and the rest of my life to bringing to Seeking Alpha and the Dividend Kings.

Your portfolio should not be run like a gambling parlor but like a private pension fund, which is ultimately what it is.

Let the gamblers pray for luck while they chase their quick speculative gains in Tesla and other hot momentum stocks.

Prudent long-term investors understand that the stock market really is like a casino, but not in the way most people think.

In the short-term anything can happen at the craps table or roulette wheel. But over the long-term, the house always wins.

So too is it with a prudently diversified and properly risk-managed portfolio.

As long as you can avoid becoming a forced seller at an inopportune time, long-term success is as close to guaranteed as is possible on Wall Street or in life.

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Click here for a two-week free trial so we can help you achieve better long-term total returns and your financial dreams.