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A Solution to the No. 1 Retirement WorryBy
Saturday, March 5, 2011
The number one retirement worry this year is the same as it was in 2010... and my no-brainer solution to this worry is still the same, too.
Here's what I'm hearing from my retired friends and readers:
I'm worried about all this government spending producing rampant inflation... overheating the economy... and ruining my savings.
If the inflation boogeyman has you ready to dump all your investments and head for a bomb shelter... relax. "Overheated" is the last word I'd use to describe our economy.
Longtime readers of my Retirement Millionaire advisory are familiar with the "money multiplier," also known as the M1. It's one of the most useful indicators in the world.
The money multiplier monitors the amount of money individuals and businesses have to spend on consumption or investment... relative to the money available for banks to lend.
When the ratio is less than "1," it implies banks aren't lending as much as they could and/or folks have less to spend on things that would increase economic activity. A reading greater than 1 suggests individuals and businesses have money in reserve that is primed to flow into the economy... like water building behind a dam.
As you can see from the chart below, the reservoir is low. Money is still not moving through the economy swiftly or broadly among sectors. You can take all the dire warnings of inflation and chuck them in the garbage right now.
Until this indicator ticks above 1, inflation is NOT a problem... or even a worry in the near term.
.gif) The declining M1, along with the slow recovery in housing values, means the economy isn't completely out of the woods yet. And until people have the power to spend, the prices of goods won't rise. Again, until the M1 passes 1, inflation remains a distant concern. So don't crawl into the bomb shelter just yet.
The good news for investors here is that there is a stock strategy that will do well regardless of increasing inflation, flat inflation, or even mild deflation.
It's owning the world's best businesses, businesses that produce huge cash flows by selling vital products and then direct lots of that cash to the pockets of their shareholders... via constant and rising dividends.
For example, my Retirement Millionaire readers are collecting safe and growing income streams with companies like Chevron, which has increased its dividend every single year for 22 consecutive years. We're also collecting safe and growing dividends from Intel.
Both companies are rock-solid dividend payers... with the strength to survive and pay you cash through good times and bad. They'll do well in the current environment, and they'll be able to increase their payouts if the economy picks up speed. These sorts of companies are a great place to keep a portion of your retirement portfolio.
To sum up, I'm just as concerned about the long-term effects of our spendthrift government as the next guy. But I'd rather focus on what the facts say right now, and position myself accordingly. Right now, the facts say inflation is not a worry... and the cash dividends in our accounts say my favorite stock strategy is working.
Here's to our health, wealth, and a great retirement,
Doc Eifrig
Further Reading:
"People will eat, drive, take their pills, brush their teeth, and go to the doctor no matter what's happening around them," Doc recently told DailyWealth readers. "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." Read more here: The Only Stocks I'm Telling My Retired Friends to Buy Right Now.
If you're interested in wealth protection, you'll want to read Doc's essay on how to globally diversify your portfolio. He's got two household names that may surprise you. Learn more here: A Wealth Protection Program That Pays You to Join.
Market NotesCHART OF THE WEEK: THE WORLD'S BEST SILVER STOCK IS SOARING Now that silver has staged its amazing "comeback," it's worth taking a look at the world's best silver stock for our chart of the week.
As we mentioned in 2009, Silver Wheaton isn't your average mining stock. It doesn't operate mines or explore for mineral deposits. Instead, it finances lots of early-stage silver projects... and collects royalties when those projects start producing silver. This makes the company a diversified, leveraged way to profit from rising silver prices.
Silver Wheaton skyrocketed more than 500% from 2009 to 2010. It then corrected along with silver this January. But now that silver has exploded past $35 per ounce, Silver Wheaton has surged to a new all-time high.
Our friend Jeff Clark of Casey Research has commented that Silver Wheaton is such a terrific silver play, we can use it to judge the severity of a precious metals mania. If gold and silver enter a mania phase, Silver Wheaton will be the stock magazine publishers throw on their covers... it will be the "must own" stock discussed at cocktail parties... and folks will talk about Silver Wheaton's royalty stream like they talked about Cisco's networking sales back in 1999. The uptrend here is spectacular, and it's set to go a lot farther.
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Stat of the week
30%
Increase in the price of crude oil in the past year. Crude is now at its highest level since late 2008.
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