Keep Grounded When The Market Is Volatile, Or, The Gordon Equation

Without having objective points to anchor around regarding your investments, it can be easy to lose context on what the underlying value of stocks should be.

You  can all too easily get over-optimistic during a bull market, and over-pessimistic in a bear market.

But if you have something to provide framework for whether or not your expectations are realistic, that will help you stick to your investments long term.

A quick way to assess the expected long term return on stocks is to use a simple equation called The Gordon Equation.

It’s simple: Just take the S&P Dividend Yield (found here), add 4.5%, and you get the expected long term return on stocks.

The Gordon Equation is a great way to keep you grounded during a bull market, and to keep you encouraged during a bear market.

Meaning you will be able to meet your financial goals better by focusing on something like the Gordon Equation than on market sentiment.