It's OK to Trail a Rising Market

The real-money Inflation-Protected Income Growth portfolio just finished a strong week, gaining a touch above $500 in the time covered since last week's update. For a portfolio that started a mere seven months ago with $30,000, last Friday's closing value of $34,722.56 represents what would ordinarily be an astounding performance.

Still, the portfolio's total return of 15.7%  in just over seven months trails the S&P 500's (SNPINDEX: ^GSPC  ) gain during that time. That index has gained around 16% during that same window, and when you add the dividends paid by S&P 500 companies to the total return, the index has easily outperformed the iPIG portfolio.

So what?
A strong case can be made that if your investing strategy can't beat a reasonable benchmark index, you'd be better off investing in the index. The thing is, in a rapidly rising market like the one we've been experiencing recently, it's very possible for the market to stay ahead of even proven winning strategies and master investors. Even Warren Buffett may be on track to trail the market for the first five-year period in basically forever.

Of course, the iPIG portfolio doesn't even pretend to be anywhere near the same league as Buffett. Still, it is built on many of the same principles of dividends, valuation, and diversification that Buffett's investing mentor, Benjamin Graham, spelled out in his classic work, The Intelligent Investor. And while the iPIG portfolio may be trailing the overall market, it still looks to be on track for its primary goal of trying to build an income stream that grows at least as fast as inflation.

When all is said and done, if you're on track to reach your goals as an investor, does it really matter whether you're trailing the overall market?

Speaking of those goals...
Last week, two companies paid their dividends to the iPIG portfolio: railroad giant Union Pacific (NYSE: UNP  ) and car parts magnate Genuine Parts (NYSE: GPC  ) . Union Pacific's dividend added $4.14 to the iPIG portfolio's coffers, while Genuine Parts' added $12.36. Union Pacific has held its dividend steady for three quarters, while Genuine Parts has paid two dividends at its current level. Both companies have track records of annual increases, and the iPIG portfolio looks forward to seeing if that trend continues.

Additionally, fellow iPIG pick Raytheon (NYSE: RTN  ) went ex-dividend last week, setting into process a payment of $0.55 for each of the 27 shares that the iPIG portfolio holds. As with Genuine Parts, Raytheon's dividend has been at that level for two quarters. If Raytheon's board continues with its pattern, the dividend will be reviewed for a potential increase after four consistent quarters.

Dividends, reliably paid and regularly increased, form the basis of the iPIG portfolio's strategy to try to build an income stream that grows at least as fast as inflation. While seven months is way too short to declare victory, thus far, the portfolio is certainly living up to early expectations.

iPIG portfolio snapshot as of July 5, 2013

Company

Purchase Date

No. of Shares

Total Investment (including commissions)

Value as of July 5, 2013

United Technologies

12/10/2012

18

$1,464.82

$1,737.54

Teva Pharmaceutical

12/12/2012

38

$1,519.40

$1,479.72

J.M. Smucker

12/13/2012

17

$1,483.45

$1,753.04

Genuine Parts

12/21/2012

23

$1,476.47

$1,926.02

Mine Safety Appliances

12/21/2012

36

$1,504.96

$1,739.88

Microsof

12/26/2012

55

$1,499.15

$1,881.55

Hasbro

12/28/2012

43

$1,520.60

$2,004.23

NV Energy

12/31/2012

84

$1,504.72

$1,973.16

United Parcel Service

1/2/2013

20

$1,524.00

$1,750.80

Walgreen

1/4/2013

40

$1,501.80

$1,770.00

Texas Instruments

1/7/2013

47

$1,515.70

$1,692.00

Union Pacific

1/22/2013

6

$805.42

$944.88

CSX

1/22/2013

34

$712.50

$790.84

McDonald's

1/24/2013

16

$1,499.64

$1,597.76

Becton, Dickinson

1/31/2013

18

$1,518.64

$1,776.06

Aflac

2/5/2013

27

$1,466.35

$1,543.32

Air Products & Chemicals

2/11/2013

17

$1,510.99

$1,561.96

Raytheon

2/22/2013

27

$1,473.91

$1,777.68

Emerson Electric

4/3/2013

28

$1,548.12

$1,580.04

Wells Fargo

5/30/2013

37

$1,525.48

$1,556.59

Kinder Morgan

6/21/2013

42

$1,518.37

$1,614.48

Cash

     

$271.01

Total Portfolio

   

 

$34,722.56

Data from the iPIG portfolio's brokerage account, as of July 5, 2013.

To follow the iPIG portfolio as buy and sell decisions are made, watch Chuck's article feed by clicking here. To join The Motley Fool's free discussion board dedicated to the iPIG portfolio, simply click here.

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