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What Financial Pros Do with Their Parents' MoneyBy
Saturday, March 3, 2012
Over the course of a year, I end up hanging around dozens of professional traders, hedge-fund managers, newsletter writers, and financial advisors... people who control hundreds of millions – even billions – of dollars.
Every type of investment vehicle... and any type of research... is available to these folks at a moment's notice.
One question I always like to ask these guys is... What do you tell your mother and father to do with their money? Do you trade it for them? Do you tell them to stay away from stocks?
The nearly unanimous answer won't surprise you if you've been reading my company's letters for long:
"I tell my parents to invest for dividends in the biggest and most stable companies we can find."
Most people reading today's essay will walk away and think, "That was a waste of time. I can't invest for dividends. I need to make money right now." Very few of these people will ever get rich.
It is nearly impossible to become wealthy overnight in the stock market. Many (if not most) of the approaches I urge readers to follow involve taking the smallest amount of risk and generating income over time.
Richard Russell is the greatest living financial writer. He is almost 90 years old now and has been writing about finance longer than most of the people reading this message have been alive. Here's what he says about the importance of "compounding" your income – that is, reinvesting the income you receive from your investments...
In a period of great financial uncertainty, dividends offer investors both shelter from the storm and solid total returns. But as Russell points out, this approach only works if you're rigorous, disciplined, and patient. (That's probably why it works... Few people display these emotional qualities when it comes to money.)
You have to be willing to allocate capital to these kinds of companies when they're cheap. That means when other folks don't want to buy them – like over the past five years with Wal-Mart, for example. You have to be able and willing to hold them for relatively long periods of time – like a decade or more.
Now... if I'm right about my audience, lots of people reading this will think, "Yes, that's what I should have done years ago. But now, it's too late." Nope. That's just not true.
It does take about a decade for the big benefits of compounding to kick in. But given the uncertainties in the world's markets, this approach is likely to beat the market right from the get-go.
We are bullish on top dividend-paying stocks because we believe more and more investors are going to buy these stocks in the future – adding significantly to their total returns. This trend is already happening. In 2011, the 50 highest-paying stocks in the S&P 500 returned more than 8%, trouncing the market's total return (which was essentially flat).
Even if this trend doesn't continue, you will still be better off taking our advice now...
If you've been making the wrong choices with money for decades, why not simply stop making those choices? You don't have to continue to be wrong. You can start being smart and doing the right thing today. All you have to do is make a few simple decisions... make a plan. And then follow it.
What does Richard Russell say about the folks who ignore this simple advice? Well, he knows most average investors won't follow a plan like this. It takes too much discipline...
If you're not generating income with your portfolio every month... stop being a loser. Move your investments into the world's best dividend-paying companies.
Trust me... The world will follow you into these stocks over the next several years. Beat the rush. Buy them now.
Good investing,
Porter
Further Reading:
12% Letter editor Dan Ferris and Retirement Millionaire editor Doc Eifrig specialize in finding the best dividend-paying stocks in the world. Read up on some of their favorite ways to boost your income with these stocks here...
Dividend growth stocks are the closest to a sure thing that exists in the stock market. They're the only source of return you can count on to rise every year. They're unbeatable investments.
"Based on the questions they ask, my readers believe investing is primarily a system for picking bottoms in the share price. But that's not true at all..."
Doc recommends an alternate way to boost your income even more from these shareholder-friendly dividend-payers.
Market NotesCHART OF THE WEEK: THINGS ARE GETTING MUCH "LESS BAD"! This week's chart is another reminder that things are looking a lot "less bad" these days.
Over the past four months, we've run a handful of charts that display how things – while not "great" – are getting "less bad." For example, we've noted the solid price strength in the important U.S. financial stock fund (XLF), Home Depot, and transportation stocks. Consumer spending stocks like Apple, Chipotle Mexican Grill, Nordstrom, Nike, Macy's, Mattel, and Whole Foods struck 12-month highs this week. And Wyndham Worldwide is still in a big uptrend...
Wyndham Worldwide is one of the most important stocks you've never heard of. It's the world's largest hotel chain. Brands here include Super 8, Howard Johnson, Ramada, and Days Inn. Wyndham owns several "upscale" hotel chains as well.
Remember... the profits and share prices of hotels rise and fall with America's propensity to take business trips and vacations. As you can see from this week's chart, that propensity is rising. Wyndham has climbed from $32 per share in October to $44.50 per share right now, which is a new 12-month high. No one can say how long this big trend will last, but right now, it is UP.
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Stat of the week
400
Number of Domino's Pizza locations in India last year. Domino's says the country is its fastest-growing foreign market. The company expects the number of its international locations to surpass the number of its U.S. locations this year.
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