Monday, February 17, 2020
League of Power

The League of power


"Freedom by Friday"

The Savings Account Risk


The Risk Trade

If you think blue chip  paying stocks are hot now…wait for another year…or buy some when the markets dips. Last I checked, my bank was paying me just less than 1% for money market cash. And, this has been the case for about three years. I know that you know it’s painful to look at how much money your money is earning. It’s beyond pathetic. You don’t hear many arguments about taxes on savings anymore…why? Because there is no money to be made on savings!

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You may be thinking that this is only a temporary phenomenon. But, three years later it’s anything but. Worse still, this will probably be the case for at least two more years if not longer. Don’t believe me? Look at Japan. It’s been paying savers nothing for more than a decade.

Here’s the deal. And, why I think dividend paying shares are heading higher. The Federal Reserve has embarked on a deliberate policy to MAKE you take risk. They have done this by ensuring that you get nothing for taking no risk, except piece of mind. But, that piece of mind comes at a price. If your money sits idle for ten years, earning 1%, you might be subject from the ravages of inflation. But, according to the Fed, inflation is non-existent right now so that shouldn’t be a worry either. Well, that’s wrong too. This is the problem. There are so many wrong arguments out there it’s hard to know which way is up.

Inflation does exist; just not the way the Government calculates it. I was at a convenience store the other day. I needed a quart of 20W50. It was marked at $5.99 per quart. I figured that since I was at a convenience store they were marking it up by a factor of at least two. I skipped the purchase and headed to an auto parts store a couple of days later. There I bought the same quart for $5.39. I was shocked. Not that the price was cheaper, but that it was more than twice what I paid for it a few years ago. That my friend is inflation. I am sure that you have seen inflation too. Smaller candy bars costing more. Same size packages at the grocery store with less food in them. Prices for fruits and vegetables heading up. Not to belabor the point, but there is inflation out there despite what the Government says.

What’s the point? The point is that earning 1% on your money, for piece of mind, for ten years, is going to cost you money. Your alternative is going to be the stock market. That is what the Fed is counting on. They know that at some point you’re going to realize you’re getting poorer doing nothing with your money and that you will want to start making some money or trying to make some money. They know that your top choice is going to be stocks. What you should be thinking is that “yes, I am going to buy stocks” but, “I am going to buy high quality dividend paying stocks” so that you can earn a dividend and also participate in the upside of the shares or…protect yourself from a big down move. With dividend paying shares, and I’m talking about companies like Verizon or AT&T or utilities – companies paying between 4% and 5.5% now, down moves are not scary and rarely last long. The reasoning is simple. When solid dividend payers head lower, people buy more because the yield goes up as price goes down.

The strategy here is to accumulate strong dividend paying shares on market dips. This way you get the shares cheaper and more yield at the same time. And, if rates stay low, as I think they will, there is a great chance that your dividend paying shares will also appreciate in price as other investors figure out what you just read!

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