By Steven M. Sears

It's one of the few certainties in the investment universe: Blue-chip stock indexes rise over time.

No special expertise is needed to benefit from that Gulf Stream of prosperity. It's available to anyone who consistently invests during good and bad times. Anyone who accepts that fact -- and commits to it during good times and especially bad times -- will achieve investment returns that rival those of almost all fund managers.

We mention this now because hardly a day passes without some sales pitch to buy international stocks because they are, so far this year, outperforming the S&P 500 index. A recent bout of U.S. stock strength also has some pundits and analysts fretting that stocks are too expensive, and that gains are likely limited.

The best response to the stock hustlers -- and this is especially true for anyone who can afford to think about investing over long periods -- is to ignore them.

Long-term investment performance data is too compelling to do anything else.

Over the past 10 years the SPDR S&P 500 exchange-traded fund (ticker: SPY) has gained about 13% and the Invesco QQQ ETF $(QQQ)$, which tracks the Nasdaq 100 index, has gained about 14%, compared with an anemic gain of about 4% for the iShares MSCI Emerging Markets ETF $(EEM)$, which is often promoted as a proxy for international stocks.

Over the past five years, the returns are about 16% for SPY, about 14% for QQQ, and 5% for EEM. Similarly strong performance characterizes one- and three-year periods for U.S. blue chips, too.

We share these facts as reminders that it is hard to create more wealth than by investing in a pedigreed index of blue-chip stocks. When gains compound over time, magic happens.

Those facts need repeating at a time when many investors are hedging U.S. stocks, chasing performance overseas, and at risk of being talked out of positions.

A better plan to consider is getting ready to buy if stocks sharply decline.

The simplest approach is buying -- and holding -- the SPDR S&P 500 ETF. Investors comfortable with options, however, can use strategies that monetize the elevated options volatility that occurs when stocks decline. Here's how.

With the SPDR S&P 500 ETF at $620.38, sell the August $590 put option for about $4.23 and the August $580 put for about $3.16. (Puts give the holder the right to sell an asset at a set price within a set period.)

During the past 52 weeks, the ETF has traded from $481.80 to $619.22.

If the ETF is above the put strikes at expiration, investors keep the premium, which is a nice amount for agreeing to buy stocks at lower prices.

If the ETF is below one or both put strikes at expiration, investors should just buy the ETF. The risk -- and it is more of a short-term discomfort for long-term investors -- is that the stock market declines far below the put strike prices. Few investors, even those who like selling puts on stocks, enjoy buying stocks at prices that are higher than the current level.

Of course, no one ever buys at the bottom, just as no one ever really sells at the top. Don't fret about trying to perfectly time when you buy and sell stocks.

Instead, focus on ways to be a better long-term investor. Think of ways to take advantage of stock and options volatility to enhance the power of compounding returns and a long investment horizon.

We have always liked monetizing short-term stock price volatility by trading puts to buy stocks lower. We call the approach "time arbitrage." It's a simple, effective strategy that combines some of the best attributes of stocks and options.

Better yet, it works.

Email: editors@barrons.com

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July 03, 2025 03:00 ET (07:00 GMT)

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