4 Keys To Surviving A Fickle Stock Market


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I recently put a hole through the knee of my favorite pair of blue jeans. I can't say I was too surprised. I think I've had them for more than five years.

Out of curiosity, I surfed online to investigate the latest styles. I was tickled to see pants tapered at the ankle are all the rage, much like the 1980s fashion. Less than 10 years ago, flared leg pants were in, mimicking the bell-bottoms of the 1960s.

I don't try to keep up with the latest trend. Buying something that ends up at the bottom of my closet within a year's time goes against my frugal nature.

#-ad_banner-#And some trends just don't suit my needs. For instance, how would I even begin to wear tapered-leg pants with cowboy boots? My worn-out jeans will eventually be replaced by an identical pair of Levi's boot-cut jeans -- a classic that has suited me for decades.

The stock market is a little like the fashion world. There are always competing tensions between form and function. And this year, both forces got their due.

Take for instance Clorox (NYSE: CLX ) . Normally, the consumer staples company is a stable holding. It's considered to be a slow and steady grower. I'm sure most day traders would view it as downright boring. But since I notified readers of The Daily Paycheck , my premium income investing newsletter, that we would purchase Clorox on February 19 of last year, it's been anything but boring.

Stable dividend stocks like Clorox were the fashionable darlings of the market when Treasury yields were historically low. After all, why settle for a 1.8% yield from a 10-year Treasury when you could get a 3% from a stalwart equity? But when the Federal Reserve signaled in May that it might let long-term interest rates rise, steady dividend payers dropped out of favor. For about a few months they were less fashionable than shoulder pads. Now that the Fed wants to leave rates low -- and the economy still appears to be fragile -- dividend payers are back in vogue.

In the television series "Project Runway," host Heidi Klum is famous for her catchphrase: "In fashion, one day you're in, and the next day you're out." But when it comes to investing, I'm in it for the long haul. I don't want the latest fad. I want what lasts.

That's why I'm telling my Daily Paycheck readers how to survive today's fickle market by following a few simple tips, which I'll share with you today...

1. Find your classics. Ignore hotshot fund managers and Wall Street pundits. Find investments that are suitable for your needs. In The Daily Paycheck , my classics are securities with good fundamentals and dependable and/or growing dividends.

2. Buy more when your classics are out of style. Wall Street might tell you to avoid out-of-favor securities. But when prices drop on classic dividend payers, the yields rise. These are the times I get out my shopping list. For me, this is the equivalent of finding my Levi's on sale. At a good clearance price, I'll buy more than one pair.

3. Wait or start small when your classics are in style. Because market fashion is fickle, you might just want to wait for a better price point if your classic is in vogue. Or you can do something I often do in my Daily Paycheck portfolio: Start with a small stake in your classic, and buy more when and if prices drop.

4. Reinvest dividends. This is perhaps my best weapon for a fickle market. When one of my classic holdings is trading at a fashionably high price, my reinvested dividends buy fewer shares at slightly lower yields. When my classic holdings are out of favor, my reinvested dividends buy more shares at higher yields.

If you can follow these simple tips, you'll be well on your way to navigating the market's short-term noise and creating an income-generating portfolio that stands the test of time. To get the most out of your portfolio, however, I recommend readers follow these tips while using my Dividend Trifecta strategy .

Simply put, the Dividend Trifecta is a three-part strategy that effectively multiplies the income earned on every dollar you invest. So far, we've found that it's 43% safer than most "traditional" income strategies and it's helped me earn over $50,000 in dividend checks since 2010. To learn more about how you can use this simple strategy, click here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing , Investing Ideas , Stocks

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