Once again, the market was full of major economic headlines this past week, as the global picture remains murky in the near-term.
What does this mean for investors? It just means you need to pay close attention to the stocks you own. If you're holding stocks that have lost their way (underlying business or industry is facing headwinds), then you must consider pulling those weeds out of your portfolio. Waiting for an analyst or broker to tell you to sell will only lead to a pileup of losses. In contrast, we at Dividend.com remain vigilant and unafraid to tell investors to ring the register" before any serious damage is done.
The other factor to consider in your portfolio, particularly for investors seeking income, is to avoid what we call "dividend traps." As share prices have fallen in the recent market pullback, dividend yields for some names have skyrocketed. If a stock's yield seems too good to be true, it probably is, so be sure these companies can actually sustain those eye-popping payouts. Now more than ever, investors should consult our "Best Dividend Stocks" list for ideas on where new capital should be deployed.
As a market addict myself, I too monitor how the business media's coverage of certain issues could influence market moves. It really is amazing how the media is able to find guests with such vastly differing opinions to cover every distinct market possibility. One one hand, you have the bear who is screaming for Dow 5,000 and gold heading to $5,000 an ounce. This analyst is countered by an expert who sees the current market ridiculously cheap, and has been buying stocks throughout the pullback. Then you'll see an international market expert identifying which overseas markets will rebound first, and then lead into the currency concerns affecting Europe. These factors then appear to set up the U.S. dollar as the "safe haven," but yet another analyst comes on and rips the Federal Reserve for its 24/7 printing of dollars, claiming the dollar is dead as a world currency. By the end of all these segments, investors are left just as confused as ever.
That's why I'm so happy to be able to communicate with more than 25,000 readers (and rising!) on a daily basis with our dividend stock-focused newsletter. As a seasoned market veteran, I can easily break down the headlines and give you my take on what I see happening. Now let's look at some specific stories making headlines recently.
Many readers probably noticed the "lowest mortgage rates ever" headline this past week. While rates are at historically low levels, the onus is really on a recovery in the job market to eventually stimulate demand for those loans. The health of any economy almost always tied to a confidence factor - consumers knowing that they find a job in many different geographical areas and relocate if need be, without worrying about being able to sell their current home. We're in an age now where consumers are smarter and better-informed than ever, though. The reality of the situation is that both the job and real estate markets are very weak. Plus, we've got a giant backlog of foreclosures waiting to be addressed, which will, at best, delay any recovery in home prices.
Another big story making the rounds is the the backlash against Standard & Poor's for their recent U.S. debt rating downgrade. The U.S. Justice Department is reportedly now investigating S&P for its mortgage bond rating practices which precluded the financial crisis. In a related tidbit, the city of Los Angeles on Wednesday dropped Standard & Poor's from rating its $7 billion investment portfolio after the agency lowered its ratings on it. The reason for the firing? L.A. simply disagreed with the rating agency's methodology and lack of transparency. Everyone is content when the ratings are positive, but when something changes (ratings downgrade), all of a sudden an entire methodology is put into question. I'm not siding with either party. I just like to point out how things operate on a government level when it comes to the big issue of money.
As an investor, you must be willing to learn what it takes to build wealth and become financially comfortable. There will be moments along the way where you'll need to make some tough decisions (perhaps selling a stock that has lost its way, saving more of your paycheck to invest, or maybe avoiding some material purchases - even if you feel you "deserve it"). As we have seen with the goings on in Washington and municipalities all over the country (and worldwide for that matter), unabated prosperity is never a given. Rainy days will certainly come, and if you are not prepared to take the actions necessary to stabilize your financial ship, you will likely lose your way.
As children, we learned that lies can turn into bigger lies, and then eventually things can spiral out of control. Ignoring the financial issues affecting you today is similar to telling a lie - things tend to snowball from the initial mistake. You can't just change the rules as you go along, either. Just look at how well the short-selling ban for stocks in Europe has worked out so far in the European markets this past week. Outsiders believed the downturn in the markets is being mostly caused by short-sellers, not the messy situations the financial companies have gotten themselves into.
Investing is never 100% clear-cut. Many of your investments will work out, while some others won't. In the end, you as the individual have ultimate control over what your financial destination will be. You can count on me to continue to pound that reality home whenever it seems timely. Let's stay focused on avoiding the trappings all around us, and be sure we're never blindsided by today's fast-moving markets. After all, wealth will not be built jumping in and out of the market, but rather putting money to work consistently and in the best names possible each and every month if you can. Remember, income-producing assets build wealth and the key is to accumulate the right ones.
Thank you for sharing part of your weekend with me, and please be sure to pass this post on to anyone you think we can get inspired and educated about money, building wealth, and using common sense to do so.
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