My Best Income Advice for This Market
Your portfolio isn’t the only one that’s taking a beating right now…
U.S. equities across the board have sold-off in the past month. The S&P 500 fell 9% in May alone. This kind of volatility makes it hard for income investors to navigate the market.
#-ad_banner-#But before you give up and empty your portfolio, remember that it’s times like this that present us income investors with the opportunity to pick up high-yield stocks at bargain prices…
But before I get into that, let’s take a look at what’s going on.
After starting the year off strong, the market has taken a turn for the worse. Europe’s debt wars, slowing growth in China and high unemployment in the United States have incited fears of another a global recession.
While it’s clear that there is no quick fix to these issues… fears of another financial crisis like the Great Recession of 2008 may be overblown.
Investor confidence is at the lowest level in 20 months and the S&P 500 is now valued at a forward price-to-earnings (P/E) ratio of 12 — substantially below a long-term average of 16. These metrics could be signaling we’re nearing the bottom of a cycle.
Still, what really matters to investors is how the crisis of confidence is affecting our portfolio positions.
In the past month, investors have dumped speculative growth stocks in favor of the perceived safety of U.S. debt. Ten-year Treasury yields, which move inversely to price, hit an all-time low of 1.44% on June 1. Meanwhile, risk-aversion and a strengthening dollar saw commodities trading at their lowest levels in more than a year. It’s no accident, then, that commodity-related shares are being pummeled as well.
So what’s an income investor to do?
You could sell your holdings. The months of May through October for the last 60 years do have a track record of poor stock returns. But do you really want to lose six months of income?
Sit tight and keep collecting your dividends
During a sell-off like this, select dividend stocks may some of the best places to park your money.
I have seen a similar pattern numerous times. After the market bottoms, dividend stocks with high-yields supported by steady cash flow rebound with a vengeance.
Action to Take –> I am waiting for confirmation of a bottom in the overall market before I commit too much capital… but meanwhile, I’m prepared to sit tight with my existing investments until I see clear evidence that fundamentals have changed or the dividend is endangered.