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This Is Your Cure for Stock Market VolatilityBy
Thursday, July 9, 2015
Most people who call themselves "investors" really aren't.
The average "investor" is really a trader. He buys a stock with the hope that at some point in the future, he'll find someone who'll buy it for more than he paid. He's trying to time the market. "Buy low and sell high," right?
More often, however, people can't stand the uncertainty. Watching the market flip and flop all over the place leads to bad decisions. People buy high and sell low. Ultimately, it's a lot of stress and research for an uncertain payoff.
But there's an easier way...
Many investors overlook the fact that your true wealth is your income.
I'll bet you have some idea of the total balance of your brokerage account – even without looking it up. But you probably wouldn't be able to quote the annual dividends that your portfolio generates.
A dividend is money a company pays its shareholders. Every quarter, the company counts its earnings and pays out some portion to its owners (the shareholders). Essentially, it's your cut of the profits.
Ignoring dividends is a blind spot many investors have, and it's a mistake. You shouldn't measure your wealth by the balance of your bank account, but by the income it generates.
Income is what you live on. Income is what gives you the freedom to enjoy your days, take vacations, or provide for your family and others.
When you buy 100 shares of a stock that pays $1 a year in dividends, you've just set yourself up to earn $100 a year in income. With a little bit of investing acumen, that income stream should rise.
And a dividend is more than just an income stream... Dividends are vital to the overall returns of your portfolio. According to studies, dividends have accounted for about 43% of the performance of stocks in the S&P 500 since 1926.
That means if stocks return 7% a year, about 3% of that is dividends. That makes for a big chunk of returns.
That difference grows over time (an effect called "compounding"). An investor who collected and reinvested dividends from 1940 to today would have earned 10 times as much as an investor who collected the capital gains on stocks alone.
Simply put, paying dividends is exactly what the stock market is about.
The future growth potential matters. The company's assets and resources matter, too.
But... if a stock doesn't provide a stream of income, then what's the point?
Remember, each share of stock represents a tiny ownership stake in a business. So buying shares of a company makes you a part owner... a kind of partner. And your dividend check is your share of the profits.
So you'll likely become a lot more successful... and richer... as an investor by asking a simple question: "What does the stock pay to shareholders (the owners) each year?"
After all, a dividend can't be faked. Companies can employ a range of accounting tricks to beef up earnings. They can come up with new grand "strategic plans" to paint a bright picture for the company's future. At times, some even engage in outright fraud.
But a dividend comes as real cash, straight from a real bank account. It can't be faked, cajoled, or conjured. Only companies with sound financial footing and real profits can pay dividends. By focusing on dividends, you'll immediately ignore many of the junk stocks out there in the market.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Further Reading:
"No one has the option of stock prices that always go up. That doesn't exist," Dan Ferris writes. "But everyone has the option of dividends that always go up." Learn more about the power of dividends here: How to Earn Predictable Returns That Go Up Every Year.
If you're looking for safe dividend income over the next few years, Doc says one sector is ripe with value. "If you're interested in earning dividends in 2015, it's worth hearing what this indicator has to say," he says. "It can help you safely earn a substantial amount of income with one of the market's cheapest sectors." Learn more here.
Market NotesANOTHER GREAT SIGN FOR THE HOUSING MARKET Today's chart is further proof that the housing boom is alive and well...
Steve Sjuggerud has been bullish on real estate for years. As he wrote yesterday, right now is the perfect moment to own a home. Houses are incredibly affordable... Prices are still down from their highs eight years ago... And mortgage rates, at around 4%, are still near historical record lows. It's a big reason Steve has been personally investing the majority of his net worth in U.S. real estate.
One indicator that shows that the housing uptrend is in full effect is the performance of flooring companies. Today, we're looking at Mohawk Industries (MHK), the world's largest flooring manufacturer. It sells everything from carpet to tile to hardwood floors. As a "bellwether" of the housing market, Mohawk benefits when folks are buying new homes or renovating existing ones.
As you can see from the chart below, Mohawk has been at the heart of this real estate boom for a while now. Shares have skyrocketed 230%-plus over the last four years... and are near an all-time high. It's the latest signal that housing remains in a big, long-term uptrend.
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