Why the Euro-Zone is Crushing Your Income

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Myth: "It's impossible to collect income from small cap stocks."

This myth is completely untrue. There are numerous ways to collect income from small cap stocks - if you know how. Dividend stocks are one way. But there is another, seldom discussed yet very simple way to collect income from small cap stocks.

My colleague recently showed me how dividends are just a small part of income investing. I'd like to introduce you to a man named Andy Crowder - who regularly uses small cap investments to collect huge income checks. You've read Andy's words several times in this letter over the past few months.

Last week Andy made $2,298 in 7 days using a little-known small cap income investment secret.

Andy is about to start showing Small Cap Investor subscribers how to do the same - for themselves.

All you have to do is click here to find out how.

In the meantime, I've been making some significant changes in my portfolio - some of them related directly to Andy Crowder and his investment strategy.

But in general, I've been concerned about my cash savings.

So last week I called my bank.

I stated that the 0.3 percent annual interest being earned in my money market account was ridiculous. Now, I know it's really not the bank's fault. I'm well aware that Ben Bernanke and his low interest rate policy are the real culprits.

Nevertheless, I instructed the bank representative to take a significant sum of money from my money market account and transfer it to my investment portfolio.

In all fairness, the money market account was never intended to be an investment per say. Rather, I've always figured that it's smart to keep some of my savings completely liquid - not in stocks or bonds. Keeping it on the sidelines means it's available for whatever unexpected events might occur.

Right now, I believe the 'unexpected' events coming out of Europe may well present a tremendous buying opportunity for stocks in the near future. The market is jumping around on European news releases like never before.

The Euro-zone is not the driver of global growth. I'm not saying it's insignificant, but I believe the world will ultimately handle the issues in Europe.

As the market digests European related news, I want to have dry powder ready to fire.

This is the real motivation behind moving this money to an investment account, in addition to paltry yields on savings.

It used to be that money in the bank would pay an annual interest rate of three to five percent. However, that's not the case today (and hasn't been for some time now). With interest rates at 0.3 percent, the monthly interest received on accounts of $50,000 is roughly $12.50.

That's right - over 12 months, one could expect to earn $150 in interest on fifty thousand dollars! That's enough to take your wife out for a fancy dinner, but it's not enough to even be considered real income. It's almost a rounding error on the sum in the bank.

This is the very real situation faced by any investor with cash holdings right now. And it is why I don't think the market will go into a sustained contraction in 2011 and into 2012. There are simply limited options for capital right now, and I believe attractively valued stocks are going to be ripe for the picking.

The news out of Europe is in large part what's keeping stocks down right now.

It's for this very reason that I'm withdrawing my savings from my bank. Don't get me wrong, I'm not saying that everything is great and stocks will soon rally. But I am saying that for the long-term investor we are likely in a period where accumulating the stocks of leading global companies is likely to pay off down the road.

Perhaps you don't have money in a savings account. But the same argument can be made for many other types of low-yield "safe" investments - Certificates of Deposit (CDs), municipal bonds, U.S. Treasuries, and even some corporate bonds.

The yields on these investments are so low that they aren't even keeping up with inflation. As a result, if you own any of these securities, the value of your savings sinks year after year.

The bad news is that there is no end in sight. Chairman Bernanke has made it clear that he has every intention to keep short-term interest rates where they are today - at zero percent - through at least 2013. Keeping these rates so low is a direct ultimatum: buy riskier assets or lose money.

As savers, we have a choice to make. We can either see our savings dwindle, becoming worth less and less every month, or we can seek out attractively priced investments that are likely to deliver returns that exceed inflation.

I've decided that enough is enough for my money market fund. There is a better way forward. There are compelling opportunities today to invest in world-class stocks at the lowest valuations we've seen since March 2009

If you're similarly starved for income from your "safe" investments, then I urge you to consider taking similar action today.

Keep some cash on the sidelines and be ready in the coming weeks and months as the market digests all of the negative news circling the wires.



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



This article appears in: Investing , Stocks

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