The problem is that easy money policy is not so easy anymore. It never did prop up the U.S. economy, in spite of Keynesian enthusiasm, but at least it created the illusion of economic health by propping up the stock market. Now, it’s unable to do even that.
At some point this year, interest rates should go up. What will happen then to dividend-paying stocks? Because they benefited when fixed-income rates were low, they will dip – and some already have, in anticipation. Over the long pull, however, dividend payers do well.
Expect choppy markets ahead. That’s what we’ve seen lately, and there’s more reason than ever to expect this to continue. Bullish and bearish factors are at war, producing frustrating up-and-down stock market movements.
When Apple replaced AT&T in the Dow Jones Industrial Average recently, all previous performance for this commonly cited investment index became even less relevant.
Focusing on market trends is a foolish way to invest – essentially betting that what has done well will continue to thrive. A new book from financial guru Tony Robbins, for instance, looks to the past to plan for the future. We all love, even need, predictability. But depending too much on what’s come before in the markets can turn your portfolio into a train speeding toward a wreck.
Market volatility is back. Just as you started to hope that stock values only ever move in one direction (up), the pendulum swung the other way. Your probable response: anxiety. Acting on that emotion, though, can do you and your portfolio more harm than good.
Bad driving conditions often produce wrecks, but not every car on the road crashes in a snowstorm. With the exception of chronic worriers, most of us don’t ponder terrible events that could potentially happen. Such forethought, though, is precisely what risk management for your money involves – unexciting, yet vital for investing success.
You hear predictions all the time that inflation is eventually coming. Right now, with the Consumer Price Index below 2% yearly, that doesn’t seem like much of a concern. But some day, investors will encounter a stronger inflation tempo. What likely will happen to their stock and bond portfolios then?
What is Warren Buffett’s secret of success? You can find numerous answers to this question. They abound in endless numbers of books, articles and investing seminars. But the world’s greatest living investor has, at core, this credo that has made him a multi-billionaire: He is an optimist.
Diversification gets a bad rap when almost everything falls at once (2008) or one sector vastly outpaces others (tech in the late 1990s). But a comparison of last year and this year shows how, once again, diversifying always makes sense over the long pull.