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The Only Stocks I'm Telling My Retired Friends to Buy Right NowBy
Saturday, January 22, 2011
"I'm worried, Dave... There's so much talk everywhere about collapse and the end of the world. What should I do?"
Like many retirees, my mom is bombarded all day long on TV and radio with talk of financial collapse and how bad off America is. Many of these commentators expect a hyperinflation that will wipe out bonds and the value of the dollar. Their top recommendations are to stock up on bottled water, canned food, and gold bullion.
It's enough to make investors want to run and hide. Don't do it...
One of the keys to great investing is ignoring the hype and focusing on facts. It's tempting to listen to a great story and put your money to work based on the story. The messages sound compelling. But it can lead to making decisions based on fear and emotion... which is a disaster for retirement portfolios.
So let's take a look at a few facts...
One number I watch is the "money multiplier" (also known as the "M1"). The M1 measures the flow of money through the economy. A reading above 1.0 indicates the economy is expanding.
As you can see from the chart below, money is still not moving through the economy swiftly or broadly among sectors. But things have improved over the past year. And until the M1 passes 1.0, we're in little danger of hyperinflation.
 Another of my favorite ways to monitor what's happening in the global economy is to watch the number of people flying. Flying is dependent on both business travelers and folks spending money on vacations. It turns out, from month to month, air traffic is increasing slightly over the year before. For example, in October 2010, air traffic was up 5.6% from a year ago. That's not rip-roaring growth. But there's no "doom and gloom" developing here.
Like passenger volume, I also use an anecdotal indicator I call the "cabbie index."
When I first wrote about the cabbie index in August 2009, there was a line of cabs just waiting for passengers outside New York City's Penn Station longer than I've ever seen. The cab drivers I talked to were worried about being able to feed their families. Today, it's still easy to get a cab. But the lines are shorter. And the cab drivers I've spoken to are optimistic the economy is stabilizing.
These indicators are just a few of the signs I'm seeing that things aren't going down the tubes just yet. In other words, you don't need to dump all your investments and head for the bomb shelter. But I'm always interested in owning investments that will prosper in case I'm wrong.
Fortunately, there are companies you can own right now that will make you money in both good times and bad. They are so dominant, and their products are so ingrained in everyday life, they'll keep on chugging along no matter what happens. I like companies that provide food, fuel, and health care right now.
People will eat, drive, take their pills, brush their teeth, and go to the doctor no matter what's happening around them. That means companies that provide proven products won't just survive, they'll boom during the next decade. This is where the bulk of a retiree's stock portfolio should be right now.
In my monthly newsletter, Retirement Millionaire, we've focused on companies in these industries. One pick – beverage giant Coca-Cola – has made my readers almost 13% in just six months... And it's paying us a solid and growing dividend.
Stick with global, blue-chip companies, and your portfolio will protect you from whatever the future holds.
Here's to our health, wealth, and a great retirement,
Doc Eifrig
Further Reading:
Dan Ferris isn't as optimistic as Doc. "The U.S. stock market is trading at around 18 times earnings," he writes. "That means the average U.S. stock portfolio bought today might double your money in 18 years (with a good crash or two in between). I don't have that long to wait, so I'll pass." But he does have a plan to protect your portfolio. Find out what it is here: A 2011 Investment Forecast Unlike Any Other You've Read.
In 10 years, the biggest stocks in the world may be companies you've never heard of before. If you want to get in before the rest of the market catches on, you'll want to read this: In a Decade, the World's Biggest Stock Will Be...
Market NotesCHART OF THE WEEK: BIG ACTION IN THE "CONTRARIAN'S COMMODITY" Investing in the "contrarian's commodity" is getting a little better these days...
For the past 18 months, we've recommended taking a position in crude oil's clean cousin, natural gas. Natural gas is used to make fertilizers and plastics, to heat and cool homes, and to fire electrical power plants. New drilling technologies have brought on huge new supplies of the stuff... which produced a 66% decline in price from 2008 to 2009. This fall has made natural gas one of the few hated assets left in the world.
Over the past few years, "natty" has formed a hard price floor in the $3.50 to $4.00 area. This is the price level where producers start cutting production. (It's also a price where our preferred natural gas vehicles can pay distributions of 5%-7%.)
As our chart of the week displays, natural gas is getting a little less hated these days. After sinking below $4 in October, the fuel has rallied hard... and just broke out to a five-month high.
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Stat of the week
86%
Increase in China's imports of cotton from 2009 to 2010. The price of cotton is at record highs.
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