Make sure that all the dividend-paying stock and mutual funds in personal and retirement accounts are coded to reinvest all capital gains and dividends. This allows you to buy more shares when prices are hit hard. The first quarter is about to end, and many stocks and funds pay dividends on a calendar quarterly basis.
If you have the good fortune to come into a windfall, like an inheritance or something similar, think about real estate. While mortgage rates have increased over the past year, the 30-year fixed rate has risen as high as 7.25% but has fallen back to 7.05% (for a 30-year FHA mortgage). That is still reasonable on a historic basis, though it is the highest since 2008. Owning cash-generating rental property is an idea that makes sense now.
If you do need to look for stock ideas, look at extremely conservative ones that are not affected as badly by even the worst-case scenarios. In other words, seek companies that provide goods and services that are needed all of the time, like utilities, telecommunications companies, consumer staples and real estate investment trusts.
Sell high-volatility stocks and look at the short end of the Treasury market. The two-year note, like all Treasury debt, is guaranteed by the full faith and credit of the United States and yields a stunning 4.32%. One-year certificates of deposit yield as high as 5.25% as well, and money market savings accounts, which are FDIC insured up to $250,000, yield anywhere from 3.75% to 4.50% with daily liquidity.
The 13-year bull market was a blessing and now may end up being a curse. There were numerous drops and corrections along the way. The fourth quarter of 2018 was a good example, when over a three-month period the S&P 500 declined 18% on an intraday trading basis. Last year was the worst year for the stock market since 2008. While 2023 has been much better, especially the tech-heavy Nasdaq, a precipitous drop is becoming increasingly possible.
Remember that even the most difficult events in human history and investing eventually have been overcome. Whether it be health-care-related, war-related, foreign geopolitical or domestic troubles, or any other issues that have combined to cause market sell-offs. With COVID-19 in the rearview mirror, the economy is in reasonably good shape, at least for now. And with the Federal Reserve finally doing what it should have done when it started raising rates in 2018, at least some of the carnage is closer to an end. However, the rally this year, especially for the Nasdaq, was likely of the bear market variety. Some feel it could be headed for a 20% or greater drop, with or without a default. So, it makes sense to take advantage of the recent increase in stock prices and shift to higher and safer ground.
Originally published at 24/7 Wall St.
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