Can the Market Keep Generating High Returns for Investors?

As once high-flying stocks across a range of industries continue to trade downward, what can we expect from the broader market in 2022 and beyond? In this segment of Backstage Pass, recorded on Dec. 13, Fool contributors Toby Bordelon and Jason Hall discuss. 

Toby Bordelon: I'm not sure I'm not concerned about future returns, generally speaking. We've heard this idea before, Jason, right? I feel like right after the bounce-back from the financial crisis, we were hearing, "The next decade, it'll be submarket returns."

But it hasn't been, right? I mean, look at the last decade. This seems to happen a lot, where people just start talking about "It's been too good for too long, [it's] going to be bad." I don't know. I think, though, like when you really look into it, my lack of concern, it really comes to the fact that I don't necessarily care what the market does, overall.

I'm not sure that many of us do. If you're invested in stocks, you care about those specific companies, not the market. It's your portfolio that matters, not an arbitrary index.

I know many of us are invested in index funds. If the market goes down, those funds are going to go down. But for me, I tend to mostly be invested in individual investments, not so much a lot of index investments. If you're in that same boat, I think you keep an eye on the specific investments you have. I think you routinely assure yourself that, "Yeah I like these companies," or whatever the current market environment is, I think they're going to be fine for that. If it's not, you change.

That's what you're looking at. Do you still have confidence in your companies given the environment we're in? If so, cool. I think you do want to think about diversification. Think about real estate. If you're not invested in real estate -- and it doesn't have to be actual real estate, it could be through REITs. That gives you real estate exposure.

Think about diversification across different industries. Think about different geographies. Don't have 100% of your assets be in U.S. companies that only do business in the United States. Look a little bit beyond that. Consider growth versus stable, mature dividend payers. Maybe have a little bit of both. If you're concerned about a spike in interest rates, maybe you want to have some mature, stable companies that balance out those high growers that might be impacted by that. If you are concerned about some crisis that might cause dividend payers to slash their dividends, make sure you're not entirely loaded up on those. If you think there's some new technology out there that's going to change things for the better, make sure you have some exposure to that.

Just keep that in mind. Just make sure your portfolio is set up to deal with a bunch of eventualities because you don't know which one of them is going to hit. None of us knows the future. The only way you can guard against an issue like that is to make sure you got a bunch of different types of investments so you're set depending on what happens.

Jason Hall: Yeah. This is one that, I don't know, I guess the best way to put it is, to some extent, it has informed a little bit of the way my investing strategy has changed over the past probably two or three years. Certainly not a recent change at all. But most folks that have listened to me ramble on about this stuff in the past know that I've adopted a barbell strategy, where I basically have two different ends of my portfolio -- and it's not 50-50, I want to say that. So I call it a barbell, but it's not evenly weighted. On one end -- and this is the larger side -- is smaller, higher-growth companies. There's a lot of those high price-to-sales companies, a lot of them are not generating earnings. But for the most part, their cash flows are improving, and a lot of them are positive cash flow, but they're growing revenues at 20%, 30%, 40%, 50%-plus, very high revenue growth companies, and they're smaller.

The other end of it, it's high-yield dividend growth companies. In other words, companies that are already starting with an above-average dividend yield -- really 3% or higher is my threshold -- and they're growing that payout 5%-plus every single year.

They have a business that's built with durable competitive advantages that increase their cash flows so they can continue to grow that dividend. That's a little bit of a hedge against below-average market returns over the next 10 years because it lowers the threshold for the returns that those companies can generate and give me some level of predictability.