Seriously, Dividend Payers—the New Growth Stocks?

Adding dividend-paying stocks to your portfolio helps you hedge against inflation and can also boost your returns in a down market cycle. This is a crucial key to a well-balanced portfolio—the fourth step I cited in my article last week, 5 Steps to Protect Your Portfolio | InvestorPlace.

Many newbie investors and younger folks often neglect this step, as they are focused on gleaning the maximum returns from their portfolios, which generally means buying lots of high-growth stocks.

However, what goes up also comes down, and when the market cycle turns bearish—or even sideways—owning a few dividend stocks can turn a losing portfolio into a winning one.

I can’t really blame investors for thinking that stocks that pay dividends are old, stodgy companies, because that’s the way it used to be. But in today’s world, more and more companies are paying dividends to entice and reward their investors—even tech companies that wouldn’t have been caught dead paying dividends ten years ago!

Portfolio Protection, Step 3: Don’t Put All your Eggs in One Basket

In my recent article 5 Steps to Protect Your Portfolio | InvestorPlace, the third step I discussed was diversifying your investments to reduce the volatility and risk of your portfolio.

You can think of diversification simply as this, “Don’t put all of your eggs in one basket”. Instead, create a portfolio that has a variety of non-correlating assets, essentially, assets whose prices move in opposite directions. That way, if one stock or sector or style of investing underperforms, you have a fighting chance that some of your other assets will rise, ultimately reducing your losses.

Many investors pay no attention to diversification. Instead, they find a sector or industry they like and invest their entire portfolios in one place. That’s great if all of those stocks just keep going up. But the laws of nature—and the stock market—never work that way for long. Consequently, those investors eventually lose their shirts because even the very best sectors don’t rule the market for ever.

The bottom line is this: By adequately diversifying your portfolio, you reduce the risk that all of your assets will decrease in value simultaneously.

Portfolio Protection Step #2: Stop-Losses—Don’t Leave Home Without Them!

In my recent article 5 Steps to Protect Your Portfolio | InvestorPlace, the second step I talked about was the importance of setting stop-loss orders.

A stop-loss is simply an order—either formally placed with your broker—or a ‘mental’ reminder—to sell your stock when it reaches a certain price threshold.

It’s painless to place when you buy your stock through your broker’s web site, or, if you prefer, you can just set an alert on whatever portfolio tracking web site you use, so that if the stock reaches that price, you can make an instant decision on whether to cut it loose or keep it. That’s what I call a ‘mental’ stop.

I’m a big believer in stop-losses for one simple reason: If your stock doesn’t go the way you think it will (up in most cases!)—for whatever reason—this little tool will limit your potential losses.

Sure, it’s true that if you are diligent in the use of stop-loss orders, you can be stopped out of what could turn out to be a very good stock. But, you know what? You can always get back in, and more importantly—stop-losses can also save your bacon if market or industry forces cause your stock to take a nose-dive.

Portfolio Protection Step #1: Set Price Targets

In my recent article 5 Steps to Protect Your Portfolio | InvestorPlace, I listed Setting Price Targets as the #1 step to help protect your portfolio, by instilling a “sell” discipline that will help you realize actual, not just paper, profits.

When I speak at Money Shows across the country, I get asked very frequently about how I set my target prices. If it’s not the most common question I get, it’s certainly up there in the top five.

First of all, I can’t emphasize too strongly that it is essential to set a target at the time you buy a stock. If you don’t, then how the heck do you know when your stock has appreciated enough to sell it?

I always ask my workshop attendees how many set price targets on their stocks, and I never see more than two or three hands go up. That’s a shame, but I think it’s because folks just don’t know how to set targets, rather than them not wanting to. So let me tell you how I do it, but keep in mind that, like all investing, it is not black and white. It’s a combination of science, art and experience. But most of all, it’s easy! No complicated math here—just a few assumptions.

Let’s walk through an example step-by-step. For this example’s sake, we’ll set your holding period at three years, max.

5 Steps to Protect Your Portfolio

If you did nothing but look at the Dow Jones Industrial Average at year-end 2010 (11,577), compared to the end of 2011 (12,217), you might say that investors made little progress.

But you would be wrong! Just look at the chart below and you can see that the year-end comparisons are not reflective of the market’s actual behavior. Instead, the volatility of the marketplace offered some great opportunities to investors who were prepared to take advantage to buy low and sell high!

 

 

5 ETFs for 2012

In my last couple of articles, I discussed the growth of the ETF industry, ETFs: Love 'Em or Leave 'Em? | InvestorPlace, how to determine which are the best ETFs to invest in, ETFs: Separating the Good from the Bad | InvestorPlace.

Now, it’s time to figure out which ETFs look promising for your 2012 investment dollars. But first, let’s take a look back at the ETF marketplace in 2011.

According to Morningstar.com, here are the top 10 worst-performing ETFs for the past year:

ETF	Symbol	1-yr. Return (%)
ProShares UltraShort Silver	ZSL	-66.31
Direxion Daily India Bull 3x Shares	INDL	-64.22
PowerShares DB 3x Sht 25	SBND	-63.78
Market Vectors Solar Energy	KWT	-63.46
iPath Global Carbon	GRN	-62.47
C-Tracks Citi Volatility Index	CVOL	-62.32
Direxion Daily China Bull 3x	YINN	-62.25
Guggenheim Solar	TAN	-61.87
Direxion Daily Emrg Mkts Bull 3x	EDC	-61.30
Global X Uranium	URA	-57.27

ETFs: Separating the Good from the Bad

In my last article, ETFs: Love 'Em or Leave 'Em? | InvestorPlace, I discussed exchange-traded funds (ETFs), their pros and cons, and the most important characteristics that investors need to know before choosing from the 1,400+ ETFs now on the market.

Many investors frequently make the mistake of chasing returns and blindly select ETFs that have the highest short-term gains. That’s a big mistake!

Unfortunately, the ETF world has caught up with the equity marketplace, with investors abandoning a long-term outlook, and instead jumping on the next “hot” idea. This has led to the proliferation of a variety of ETFs, many that are thirstily sucking up investors’ hard-earned money. But on the bright side, innovation in the ETF space has also meant that investors now have a broad choice of different ETFs to select from. The key is—as with any investment—separating the good from the bad.

Let’s first take a look at the different types of ETFs available to you today, beginning with those that are weighted by alternative parameters: