3 stocks barely more volatile than bonds

The first decade of the 21st century has given many investors a cold sweat. The S&P 500 went from 1500 points in 2000 to 800 points two years later. In 2007, it was back at 1500 points and two years later it fell to 700 points. Today it is approaching its historical peaks again. On two occasions the index lost more or less half of its value., and twice it rebounded just as strongly. And here we are only talking about the index that groups together the 500 largest US capitalizations...

We can indeed imagine that if we focus on individual values and on smaller companies, the volatility was even greater. Of course, this strong variation in prices has advantages: it allows the market to quickly correct excesses, both upwards and downwards, and to identify great buying opportunities (or short selling opportunities for speculators). The smart guys who bought in 2003 and 2009 are certainly grinning from ear to ear right now. On the other hand, the poor guys who invested in technology in 2000 or in real estate or banks in 2007 are still kicking themselves.

Any investor who has already had a few years of experience in the stock market has found himself more or less in the shoes of these two roles. In the long term, there are few who have only bought at the wrong or right time. Afterwards, we always tell ourselves that we should never have invested at a certain moment, or on the contrary that we were really good, but we must not forget that we always feel much more intelligent afterwards, that is to say once we know what happened. In psychology, we call this the after-the-fact knowledge bias. When you look at market prices in 2000 or 2007, you say to yourself, "You really had to be crazy to buy at that time." But at the time, we simply did not understand the scope of Internet values and the complex structured products established by banks. We do not really understand them any better today, but at least we know that it is dangerous.

All this to tell you that although volatility has many advantages, it also clashes with our investor personality, our emotions, our fears, our greed, etc. It pushes us to buy when the stock goes up (we want to join the party) and to sell when it falls (to save our skin). If you have a strong financial back and know how to keep a cool head, it can be an advantage, but for that you already need to have a good knowledge of the market, and, above all, know your own limits perfectly.

To avoid being guided by emotions, one can of course invest in less risky investments, such as bonds. However, these are very sensitive to inflation and interest rates. After a long period of accommodative economic policy by central banks, The future prospects for bond investments are therefore not very favourable., especially since their current yield is not high.

On the other hand, there are stocks on the market that show a volatility barely higher than that of bonds. This is the case of:

• Wal-Mart (NYSE:WMT) → volatility: 6.83%
• Johnson & Johnson (NYSE:JNJ) → volatility: 7.96%
• Colgate-Palmolive (NYSE:CL) → volatility: 8.36%

Of course, the volatility is still double that of bonds. But it is half that of the SMI, which is an index composed of essentially defensive stocks. If the price of these shares varies relatively little, it is because these companies are located in sectors not very sensitive to economic hazards (consumer goods, health). They thus manage to generate profits on a regular basis and pay a dividend to their shareholders. Better still, they have been able to increase their distributions between the three of them for a total of 131 consecutive years!

These three stocks are a good compromise for anyone who wants to benefit from the profitability of stocks, but with a volatility half that of the marketThey protect better against inflation than an investment in bonds, while offering an attractive and growing return in the form of dividends.