When retirement approaches you do not want to have your investments in vehicles that crash like the stock and real estate markets did in 2008. But what are secure retirement investments in today’s world and what sort of returns can you expect. Phy.org discusses the current lack of secure investments and how it is hindering global growth.
Unless you’ve been following the subject closely, you may not have heard of one of the biggest barriers slowing the revival of global economic growth over the last decade. That would be the “safety trap,” a problem arising from a lack of low-risk investments around the world.
To see the problem, recall that after the financial-sector crisis in 2007 and 2008, a large portion of investments people had considered safe-mortgage-backed securities come to mind-were suddenly understood to be risky. And yet, the ensuing flight to safe assets, such as U.S. debt, has come with its own cost. The increased demand for these safer investments keeps interest rates at low levels, to the point where central bankers cannot spur additional economic output by further lowering those rates. This is the “trap” part of the safety trap.
It turns out that the number of safe assets for investors has fallen by about a half in the last ten years. U.S. debt (treasury bills) were and still the safest of the safe but interest rates fall farther and farther as demand for U.S. and other government debt increases. It is certainly wise to put some of your retirement assets in U.S. treasuries in order to preserve capital but what about something that generates a little income along the way. After all people are living longer and longer so you don’t want to run out of money when you still have twenty or thirty years of life ahead of you!
How Safe a Bet is Coca Cola or Proctor & Gamble or Colgate Palmolive?
You can make more money with dividends from a strong dividend stock than from U.S treasuries these days. But how do you know that a company is a safe bet? Warren Buffet has been quoted as saying that he does not know what a tech stock will be worth in ten years but that he can easily guess what a Snickers bar will sell for. Add toothpaste, paint, glass, soft drinks and makers of batteries or heating and cooling controls to the “snickers” list. There are companies that have paid dividends for more than 100 years and will probably be paying dividends for a hundred more. Take a look at Dividend.com for their comments about 15 such stocks and their predictions as to which will or will not still be paying dividends a century from now.
As a dividend investor, you might have trained yourself to look for fantastic yields when placing your money. While 10% yields are attractive, they’re worthless if the company can’t sustain the payments.
These 15 companies have paid out dividends for at least 100 years-and are hoping to continue for a hundred more. Will any of these companies still be paying a dividend when we ring in the 22nd century?
The stocks that have paid dividends for more than 100 years and who the authors believe will still be doing so in the 22th century are these.
General Mills, GIS
Johnson Controls Inc., JCI
Church & Dwight Co., Inc., CHD
Stanley Black & Decker, Inc., SWK
Eli Lilly and Co, LLY
UGI Corp, UGI
Proctor & Gamble Co., PG
The Coca Cola Co, KO
Colgate Palmolive Company, CL
PPG Industries, Inc., PPG
The ones that have paid for more than 100 years and might not make the next century are these.
E I Du Pont De Nemours and Co, DD
Edison International, EIX
Exxon Mobile Corporation, XOM
Consolidated Edison, Inc., ED
Chubb Corp, CB
Over the last few decades China converted itself from an isolated state run economy into an economic powerhouse. Along the way many who were able to invest in Chinese companies did well. But the question for new investors is should I buy Chinese stocks today? A glance at an article in Bloomberg Markets indicates that this might not be the time while Chinese stocks fall their most in three weeks as traders bet on a weakening Yuan.
Chinese stocks dropped the most in three weeks, led by industrial companies and small-cap shares, amid concern that a weaker yuan will limit prospects for further stimulus and state-backed funds will sell shares.
The Shanghai Composite Index declined 0.8 percent at the close. Beijing Originwater Technology Co. posted its biggest loss since February. Hong Kong’s Hang Seng Index rose 0.3 percent, reversing a loss of as much as 0.6 percent. The ChiNext gauge of small-cap companies slid the most since July 27.
“To stabilize the yuan, the People’s Bank of China may have to reduce liquidity in the domestic market,” said Hao Hong, chief strategist at Bocom International Holdings Co. in Hong Kong. “The market will be consolidating in the short term.”
The Chinese economic miracle seems to have come to an end. There a several reasons for this. First of all the effects of the Great Recession are still being felt across the globe so Chinese exporters are dealing with fewer orders. The country is importing fewer raw materials which hurts emerging market nations dependent on commodity sales which in turn further reduces buyers of Chinese products. And China is following the same path as Taiwan, Japan and South Korea in that its workers are getting older and demanding higher pay. China has become less competitive at a bad time. And there is the matter of Chinese debt.
Dangerous Chinese Debt Burden
When you ask yourself should I buy Chinese stocks consider the debt burden that China has taken on. While its economy was growing at ten percent a year or better it was a functional business model to take on debt to fuel growth and subsequent profits. But the debt taken on since the Great Recession has not resulted in the same level of growth as before. Barron’s looks at China’s debt problem.
The Chinese economic profile shows stark contrasts. Its legacy of rapid and sustained growth for three decades is unsurpassed. At the same time, however, China has accumulated debt at an extraordinary scale for a developing economy. This could weigh heavily on Chinese and global economic performance in the years ahead.
The day of reckoning is not here yet. But history suggests that a debt build up has consequences. In general, China’s economy and financial system are vulnerable and susceptible to shocks when there is a significant accumulation of debt.
In the 1990s, Thailand and Mexico buckled under the burden of heavy debt. These are relatively small economies, and they had external debt issues. China is a large economy and faces domestic debt problems. The Japanese experience after the 1980s debt boom and the recent U.S. financial crisis following a credit surge are closer to the Chinese situation.
The smart betting says that China will follow the Japanese example with much slower growth and deflation. Should you buy Chinese stocks? Strong companies a large offshore market might be good bets as the Yuan weakens and makes Chinese products more attractive but beware of high debt loads in the land of managed capitalism.
Brazil rode high during its commodity boom and has been licking its wounds ever since. Venezuela bought friends in the Caribbean with discounted oil and now its citizens cannot find milk, diapers or toilet paper in the stores. Beware of the resource curse of boom and bust cycles in commodity dependent economies. Bloomberg writes about the economic meltdown in one resource rich economy, Mongolia.
Mongolia, a mineral-rich and landlocked $12 billion economy bordering Russia and China, is staring at a full-blown balance of payments crisis. It’s caused barely a ripple in global financial markets, but the nation’s economic meltdown offers instructive lessons to far bigger resource-reliant economies like Brazil, Venezuela, Russia and Saudi Arabia.
An overabundance of natural resources can result in lopsided economic growth, government waste and boom-bust cycles that can leave a country’s finances in tatters.
Perhaps you have engaged in foreign direct investment in countries like Mongolia, Brazil, Russia or Saudi Arabia or have bought into stocks of companies that invest in these places. If that is the case you need to beware of what the economists call the resource curse of boom and bust cycles. Mongolia, like other resource rich countries, rode the Chinese economic boom to the top and then started to use their cash flow to get or issue credit to build too fast and syphon off their riches just as the riches were on the downturn. Investing in these countries can be profitable but how do you proceed in order to avoid losses? Our direct foreign investment article provides a few clues.
Foreign direct investment is done by folks with lots of money and the intention to stay a course and make a profit. If you are looking for offshore investment ideas, take a look at where foreign direct investment goes year after year after year. There have been changes afoot regarding where foreign direct investment is going. A very useful reference in this regard is the just published United Nations study, World Investment Report 2013. We have used 2007 and 2012 as bookend comparison years as 2007 was just before the onset of the worst recession in three quarters of a century and 2012 is the most recent year reported. Of note is that direct foreign investment has fallen in the large majority of nations but there are exceptions that should help guide investors with their fundamental analysis of where to put their money in the years ahead.
Take a look at the more recent World Investment Report of the United Nations for information as to where the smart money is going. Then you can pursue investment in commodity rich countries and often pick up bargains when the nation is going through the bust phase of their economic cycle. After all, the world always needs raw materials and the world economy always cycles up and down. Just don’t buy in at the top of a commodity boom only to lose your money in the bust. Beware the resource curse when investing.
Everyone dreams of a comfortable retirement doing the things that they never had the time or money to do when they were younger. What are safe investments for retirement? If you want to live comfortably in retirement there are three things to consider:
- Investing for retirement
- Investing in retirement
- How fast you draw down your asset pool
Investing for Retirement
We wrote about how to invest for retirement years ago.
In the up and down markets of today many investors are simply concerned with not losing money rather than putting away something for their so called golden years. The way to invest for retirement has commonly been to start early and keep adding to savings over the years. Earnings on investments compound and after a few years can equal yearly contributions to a bank account, stock portfolio, or stack of bonds and treasury bills. Many invest for retirement with dividend stocks which will provide a quarterly dividend check along with, hopefully, stock price appreciation.
Common sense tells us that you can a few risky growth stocks in your portfolio when you are young but that you will typically want to move to safer investments as you approach retirement.
Investing in Retirement
Here are some thoughts on retirement stocks.
Investors typically look for reliable income from retirement stocks. Thus it should come as no surprise that the stocks seniors love are primarily blue chip dividend stocks. Forbes writes about seniors’ stock preferences.
The retirement stocks most loved by seniors and their dividend yields are these:
- Verizon Communications, 4.46%
- Pfizer, 3.25%
- IBM, 3.04%
- Apple, 1.59%
- AT&T, 5.36%
- GE, 3.34%
- Exxon Mobil, 3.41%
- Microsoft, 2.6%
- Johnson & Johnson, 2.99%
- Intel, 2.92%
Making Your Asset Pool Last
How much money can you spend every year in retirement and no run out? How long will you and your spouse live? And do you want money to be left over for the kids? Forbes writes about safe withdrawal rates so that you won’t run out of money in 30 years.
Traditional safe withdrawal rate literature regularly makes the assumption that retirees will choose a withdrawal rate that will leave precisely no wealth after the final withdrawal in the thirtieth year of retirement. Retirees cling to the inflation-adjusted withdrawal amounts, which leaves them playing a game of chicken as their wealth plummets toward zero.
The writer looks at three scenarios:
- The classic case in which wealth is depleted after thirty years,
- The case in which the nominal value of retirement date wealth is preserved after thirty years, and
- The case in which the real inflation-adjusted value of retirement date wealth is preserved after thirty years.
Read the article for the calculations. In regard to the three scenarios what are safe investment for retirement? You will want growth, cash and stability. That takes us back to solid dividend stocks but also bonds and a portion in cash. But the bottom line is to look at what you are doing, not pay excessively for someone to manage your money and only spend what fits in your live thirty more years and beyond budget.
Penny stocks are cheap but are they good investments? Why buy penny stocks? For that matter what is a penny stock? According to Investopedia:
A penny stock typically trades at a relatively low price and has a small market capitalization, usually outside of the major market exchanges. These stocks are generally considered highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure. They often trade over the counter through the OTCBB and pink sheets.
So, why buy penny stocks? Most penny stocks deserve their low price but there are diamonds in the rough. Trendshare poses the question, should you buy penny stocks?
You must do your research to find any good stock. Plenty of stocks are undervalued, but to prove that you must understand their business. Why is the stock price so low? Is the company struggling? What are the chances it will succeed? Most of these businesses are risky gambles, and they’re obvious even after a few minutes of looking. That’s why penny stocks are bad. Your research time could pay for itself.
Because so many penny stocks are bad investments and even subject to pump and dump price manipulation most investors avoid this entire market niche. That having been said there are good penny stocks that will make a lot money if you find them. How does that work? You can do all of the research yourself or you can use the advice of market analysts.
Penny Stock Suggestions
Money Morning routinely offers penny stock suggestions. Here are their 5 top penny stocks from a recent article.
Today we’re bringing you our updated list of the top five penny stocks this week. All of the penny stocks in this week’s list delivered market-busting gains last week, with the top-performing stock rising over 170%. Money Morning updates our top five penny stocks list every week for readers. We only add stocks from the most reputable exchanges, like the NYSEMKT or Nadsaq, to our list. That’s because these exchanges require more rigorous financial standards than Over-the-Counter (OTC) markets.
It is important to note that they do not pick penny stocks from OTC markets but rather stocks that are held to higher financial reporting standards, which makes analysis more accurate. These are their most recent picks.
Lucas Energy, LEI
International Shipholding, ISHC
Ekso Bionics Holdings Inc., EKSO
Novavax Inc., NVAX
Neonode Inc., NEON
Lucas Energy is a depressed energy stock while International Shipholding is a maritime shipper and a turnaround play. Both of these stocks get better if the economy improves.
Ekso is a fast growing company that makes exoskeleton devices or wearable robots. It this stock succeeds it will be phenomenal. But remember what Warren Buffet says about picking stocks in fast growing sectors. You can predict that the sector will grow but it is hard to predict the individual winners.
Novavax is a biotech company that makes vaccines with a proprietary synthetic gene method. Like other biotech companies this one could soar to huge profits as the biotech sector grows but picking individual winners is tough.
Neonode develops optical sensing technology that turns surfaces like tabletops into touch screen surfaces for smart devices. The same promises and same cautions apply to this stock as to other high techs.
With all the trouble picking winners why buy penny stocks? Adding a reasonable number of well-chosen penny stocks to your portfolio offers the possibility of an investing home run or two with hundred fold or even thousand fold gains.
Although the S&P 500 is trading at a record high energy stocks are not part of the rally. In fact energy stocks are heading lower as oil prices skid according to The Wall Street Journal.
U.S. stocks edged higher Monday, but energy shares dropped as the price of oil fell back toward $40 a barrel.
Energy stocks in the S&P 500 fell 2.7% and U.S. crude oil lost 3.3% to $40.25 a barrel. A glut of fuels and growing global production has weighed on crude prices recently.
How low will energy stocks go? So long as production remains high and demand off of its peak energy stocks will suffer. Many emerging markets are dependent on exports of crude oil and natural gas so they will continue to produce even at lower prices until the money runs out. This is a good fact to keep in mind when considering emerging market stocks. The second biggest user of energy in the world is China. Because China’s economy is slowing down so are its energy needs. How low energy stocks will go depends to a large degree on whether China can stabilize its economy or if it experiences a hard landing.
Chinese Expansion Turns to Contraction
The Economic Times reports that China manufacturing contracts as measured in July by the Chinese purchasing manager’s index (PMI).
The official PMI came in at 49.9 for July, down from 50.0 the month before and underlining problems in the world’s second-largest economy. A reading above 50 signals expanding activity, while anything below indicates shrinkage.
The National Bureau of Statistics attributed the slowdown to summer downpours, which hit the industry-heavy middle and lower reaches of the Yangtze River particularly hard. “Production and transportation of relevant areas were massively impacted,” said NBS analyst Zhao Qinghe, adding that slowing expansion and overcapacity also dragged.
Chinese officials may be blaming the shrinkage in manufacturing on the weather but this is an economy that grew by ten percent year after year and now is officially in the 6% range and probably closer to two or three percent according to analysts. How low will energy stocks go and for how long? Watch what happens in the land of managed capitalism. Meanwhile are the any ways to hedge your risks while investing in energy stocks and waiting for a rebound?
Safe Energy Stocks
CNBC says there are safe energy stocks even in today’s market.
The oil industry is no stranger to boom and bust cycles.
Crude has bounced back substantially since bottoming at $26.21 a barrel earlier this year. But with the commodity now hovering in bear market territory it seems oil’s run may be over.
Crude’s fluctuating price is weighing on some of the biggest energy names, with Exxon, Chevron, and Phillips 66 all posting disappointing earnings.
But that’s not stopping one analyst from staying overweight big oil.
Those who choose to invest now in big oil stocks like Chevron, Exxon Mobile or Royal Dutch will be taking advantage of low prices and high dividend yields. The CNBC analyst expects oil price to rise in late 2017. Meanwhile remember that while oil exploration has been hit badly as has crude production, refiners are still making money which is part of the rationale for keeping some big oil stocks in your portfolio.
When the market falls the weakest stocks from emerging markets take the worst hit. And when the market recovers these same stocks are often the most impressive performers. Why buy emerging market stocks? Buy them to diversify your portfolio, to pick up cheap investments when currency exchange rates are favorable and buy them to take advantage of economies in their early stages of growth. This may in fact be a reasonable time to buy emerging market stocks. Bloomberg notes that emerging market stocks are advancing with an 11 year low in volatility.
Emerging-market stocks rose toward the highest level since China’s currency devaluation last year, while volatility fell to an 11-year low, on optimism earnings are improving and central banks remain supportive of growth.
More than half of developing-nation companies that have reported financial results for the last quarter have beaten estimates, following similar positive momentum in the U.S. and Europe.
The MSCI Emerging Markets Index climbed 0.5 percent to 874.98 at 9:22 a.m. in New York, heading for the highest since Aug. 11 and tracking gains in Europe after the U.K. reported second-quarter growth that was quicker than estimated. Eight of the 10 industry subgroups on the developing-nation gauge rose, led by technology companies.
The old wisdom is that the best time to buy stocks is when things are at their worst. The problem is knowing just when that is and not investing your money at the beginning of a prolonged period of stagnation. Thus many investors look for the first sign of an uptick in order to buy and ride a bull market to profits. If this a good time to purchase, why buy emerging market stocks?
Strong Dollar, Offshore Bargains and ADRs
The US dollar is strong and will likely get stronger as interest rates go up in the USA. The current best guess is that rates will go up in December and not before. Nevertheless, a strong dollar makes stocks in foreign countries cheaper, even if you purchase them via American Depositary Receipts (ADRs). You hope, of course, is that when the dollar weakens and the foreign currency gets stronger that your investment in that country will profit both from the business and from the exchange rate. The web site Top Foreign Stocks offers lists of foreign ADRs available from Austria through Zambia. Here is Zambia.
- Copperbelt Energy Corp: Electricity
- Zambeef Profits: Food Producers
- Zambia National Commerce Bank: Banks
- ZCI Limited: Industrial, Metals, Mining
We are not suggesting that you buy any of these specific stocks but rather suggest that you look at companies that make money within the country instead of exporters. This is because virtually all commodities are denominated in US dollars so the exchange rate changes make little difference to the value of the stock. But in a growing economy the service sector can prosper and your profits will be denominated in an eventually stronger currency.
ADRs and Analysis of Intrinsic Value
Successful long term investing requires that you look at the intrinsic value of the stocks that you buy, hold or sell. The value of ADRs is that first of all you do not need to speak a foreign language or buy stocks in a foreign market. And secondly top level ADRs provide the same sort of financial info that US stocks do which allows you to make an accurate assessment. To the extent that you spend the time researching emerging market stocks and make reasonable picks you will have a stock portfolio that is nicely diversified across currency exchange rates and various world economies.
The most unusual presidential campaign in the history of the USA is rounding the bend with the respective conventions. In our last article we looked at what a Trump presidency would mean for stocks. Today our question is what would a Clinton presidency mean for stocks? Kiplinger has already weighed in with their 7 best stocks to own if Clinton wins.
We’ve compiled a list of firms that stand to benefit if Hillary Clinton, the presumptive Democratic nominee, is elected in November. Because Clinton has been in politics longer and has released a greater number of official policy positions than Donald Trump, her expected Republican opponent, investors have a better chance of anticipating how various industries might be affected by a Clinton presidency than they would by a Trump victory.
Although we have an idea about what Clinton would want the odds are that the Republicans will retain control of the House of Representatives even if they lose the senate. Thus there will need to be deal making for the government work function. That having been said here are the Kiplinger picks.
- Cognizant Tech Solutions
- Hospital Corporation of America
- Lockheed Martin
- Marriott International
- Sun Power
- Toll Brothers
- Wal-Mart Stores
As Kiplinger notes Clinton has a long track record and stated policy positions on a huge number of issues. As such it is a lot easier to decide how the market would be affected when she is president as opposed to if Trump pulls off an upset.
Fox News predicts an election correction for stocks.
Since 1945, the S&P 500 has gained 5.9%, on average, during presidential election years. But in the presidential elections in which neither candidate was an incumbent, the S&P declined by an average 3.3%.
Analysts chalk this up to uncertainty if neither candidate is an incumbent. But the logical corollary is that after the election the market should get used to the new president and correct upwards. If that is the case either presidency would be generally good for stocks.
Can They Work Together?
If governmental power is split after the election the most experienced politician may be the one that will be able to cut deals and keep the government functioning. A valid concern is that with another Clinton in the White House the Republicans will simply entrench and attempt to block everything that the Democrats propose. If this the case the question is not only what would a Clinton presidency mean for stocks but what would Democrat controlled congress or a split congress mean for stocks?
Will the Democrats Win Everything?
In a normal election year one can usually predict how the senate and house will be based on the strength of a party’s presidential nominee. This year Trump says he does not need the party and is jeopardizing Republican control of both houses of congress. The Denver Post says that Republicans should worry about losing the house.
Republicans need to start worrying about losing their majority in the House of Representatives.
Clinton’s lead in the polls is widening to the point that Republicans need to set aside their complacency. Split-ticket voting has declined over the last generation. If Clinton wins big – because Republican voters stay home, or swing voters choose her party, or both – House Republicans will struggle to win re-election. Henry Olsen, the co-author of a recent book about the Republican Party, tells me that an eight-point win would put Republicans in the danger zone.
What would a Clinton presidency mean for stocks? Watch to which party emerges with a major in the House of Representatives.
The 2016 presidential election campaign is rounding the bend and going into the final sprint to the finish line. This week is the Republican National Convention after which Donald Trump will be the official Republican presidential candidate. We have two thoughts about this. One is whether or not the stock market is a predictor of who gets elected and the other is what would a Trump presidency mean for stocks?
Stocks Predict the Winner
Bill Clinton is famous for having said, “It’s the economy, stupid,” in regard to how folks would vote in 1992. According to Bloomberg he might as we have said stocks instead of the economy. It turns out that the stock market has an enduring record of calling presidential races.
For an idea of how a presidential election will go, you could do a lot worse than look at the stock market.
It has a record of prescience that is hard to exaggerate. Since 1928, U.S. equities have correctly signaled who will win, incumbent or challenger, 19 out of 22 times, data compiled by Strategas Research Partners LLC and Bloomberg show. When stocks are higher in the months before a vote, the sitting party has won 86 percent of elections.
A higher stock market is a sign of optimism and a lower market is a sign of pessimism. Optimists like the party power and pessimists vote against them. Trump should be hoping for a bear market around September and lasting until election day. And what happens if “the Donald” gets elected?
A Trump Presidency and Stocks
NASDAQ has published an investor’s guide to a Donald Trump presidency.
Although it’s impossible to know who will win, many speculate that a Trump presidency would send the economy and stock market into a downward spiral. Experts are also drawing parallels between the audacious Trump campaign and the recent Brexit vote. His supporters, like leave voters, are tired with the status quo and would do anything to see that change. If the offbeat republican happens to win the White House, there are few themes investors should watch.
They believe that construction and materials companies would prosper if the famed wall on the border with Mexico is built and more so if Trump were to follow through with investments in infrastructure. Multinationals would be hurt if Trump nixed trade deals and does not follow through with the Trans Pacific Partnership. Global companies like Amazon and Walmart would be hurt. And meanwhile defense and security stocks would do well if Trump’s wish to make gun permits valid throughout the nation and increase defense spending. The agricultural sector would be hurt if all migrant workers without papers were sent back to Mexico and points south. But lower corporate taxes would be a relief to multinationals who might be persuaded to bring their profits back home.
What if Trump becomes president but the Democrats control the senate and hostile Republicans control the House of Representatives? That might be a recipe for a dysfunctional government worse than that which we have seen.