There is a buying frenzy ahead. Driven by the Fed’s expected decision to raise interest rates in the near future, this could very well be a golden opportunity for retirement investors.
Want to play it safe with your money? Take it from Steve McDonald: That’s the best way to end up broke in your 80s. Find out how you can make the most of the dynamic markets… before it’s too late.
TRANSCRIPT
One of the best ways to end up broke in your 80s is to be too safe with your money: too much in cash, money markets, Treasurys.
I know I have said this many times, and I have beaten to death the inflation monster that drives the slow painful descent into late-in-life money problems. So, the fact that this happens and how it happens should not be a mystery to anyone.
But Thomas Lee, a strategist with Fundstrat Global Advisors, says there’s a new twist in store for the part of the market that can keep you both safe and in the chips throughout your retirement.
According to Lee, we are on the verge of a buying frenzy, the greatest buying frenzy of modern times, in blue chip, dividend-paying stocks. And the real news is it will be driven by the Fed’s decision to raise rates.
Since 2007, the average U.S. household’s allocation to stocks has declined by 18.5%. This is the largest liquidation in history, far surpassing the drop of 10% between 1979 and 1989, which preceded the huge inflow of money into equities in the ‘90s.
And according to Lee, not only will we see a ‘90s-like shift back into this segment of the stock market, the move will be exaggerated by the Fed’s expected interest rate increase in December.
Lee expects to see significant selling in bonds following the rate increases that have to happen, and he expects that money to move into the dividend payers whose payout rate is higher than the company’s medium-term bonds’ interest rates – that is, if the dividend is greater than the return on those bonds.
Lee likes companies rated “A” or higher with market caps of $10 billion or more. They are all the big, recognizable names we have been seeing for decades. None should be a surprise.
Now, I know folks don’t run to the false safety of guarantees on their money because they feel safe out there. And I also know most consider the stock market too risky for their safe money.
But history teaches us blue chip dividend payers have returned enough over the long term to keep you out of the late-in-life poorhouse, and they do it with minimal risk.
If you use a little common sense – and don’t go hog-wild after the big shift Lee predicts materializes – this is a relatively safe, profitable strategy.
And even if the buying frenzy doesn’t happen, history is still on the side of the dividend blue chips. As long as you use all the tools available to make good buying decisions – not paying too much for a company and not waiting until after the run-up to buy – this does work.
Get to know the history of the market. It will pay.
Good investing,
Steve