It's a question I've been getting almost daily from my
subscribers: "What does the fiscal cliffmean for stocks, and how
can I adjust my portfolio accordingly?"
To be honest, you're not going to like my answer... it's not
something most investors want to hear.
Yet what I'm about to tell you has helped investors get through
every major economic event of the last decade. It worked in
themarket downturn of 2002... then again in 2007... and it even
worked through the financial crisis of 2008-2009.
In fact, through every major economic event the United States
has ever faced -- including the GreatDepression -- thisinvesting
strategy has helped investors earn staggering returns over the long
Yet despite all of its success, investors are still reluctant to
use it. They actually think that by trading in and out of stocks on
a regular basis, they're getting some sort of "edge" on the
So what's my advice for handling the "fiscal cliff?" Don't do
anything. That's right, nothing. Just let the great companies in
your portfolio -- the ones dominating their markets and paying
investors fat dividends -- continue to grow your wealth over the
Each day, financial talking heads get on CNBC and Bloomberg and
try to convince you that some big economic factor is going to have
a profound effect on the stock market.
Last year, it was the European debt crisis. A month ago, it was
the election. And today, it's the "fiscal cliff." Next month,
they'll have something else for us to worry about.
Although these events can move the market in the short term,
over the long run, they simply don't matter.
Think of all the shocks investors have experienced in the past
100 years -- fhe Great Depression, World Wars I and II, the 1987
crash, stagflation and the tech bubble. And these are just some of
the major items.
And yet, through all that, investing in great businesses
-- dominant companies that pay rising dividends -- has proven to
be a winning strategy.
A $1,000investment in
the day before the 1987 crash would be worth more than $14,000
today. A $1,000 investment in
Becton Dickinson (
on the same day would now be worth more than $10,000.
When you own stocks like these, you don't sell them because some
one-time event could negatively affect the stock market. People
aren't going to stop drinking Coca-Cola because the S&P fell
5%. And they aren't going to stop buying coffee from
Starbucks (Nasdaq: SBUX)
because of an increase intaxes .
While the financial media frets over the latest impending
catastrophe, these companies quietly continue to plow ahead,
handing investors outsized returns in the form of capital gains
anddividend increases. Just look at what these ten blue-chips, each
of which is practically a household name, have done for investors
during the past ten years.
As you can see, not only did these stocks "shrug-off" every
major economic event in the past 10 years (and there were many),
they were able to hand investors steady dividend growth as
But investing in great companies alone isn't enough. If you
really want to increase your returns, then you should consider
doing what I do and reinvest your dividends. By reinvesting your
dividends, you're using your dividend proceeds to buy moreshares of
stock. As each position in your portfolio grows, so do your
Take a look at the same chart, but this time consider your total
return if you had reinvested your dividends.
As the chart above shows, you can use dividend reinvestment to
dramatically "juice" your returns. In fact, according to a recent
report, if you had reinvested your dividends for the past 80 years,
then your return would be 8 times higher than if you hadn't
Action to Take -->
So let the talking heads and the financial media worry about
whatever they want, but at the end of the day, when it comes to you
ownmoney , never forget where the real returns from stocks come
from over time -- dividends and dividend reinvestment.
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