Top 5 Things Mutual Fund Companies Don’t Really Want You to Know

Last month I had the opportunity to write a guest blog post for Modest Money. In this guest blog post I covered the top five things mutual funds companies don't really want you to know:

1. The majority of mutual funds underperform the stock market

2. Good fund managers are lured away by other mutual fund companies

3. When a lot of people start withdrawing money from their mutual funds, all fund owners suffer

4. Even if you don’t sell your mutual funds, you’ll still pay taxes any capital gains

5. All mutual funds have fees, including index funds

Bonus #6: What They Really Don’t Want You to Know!: The Solution

Click here to read the complete blog post.

Thanks to Jeremy for the opportunity to write for Modest Money!

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Monthly Blog Roundup - Bringing You The Best of the Best

Here is the monthly blog roundup for April.

There are a some really good bloggers out there, and this is my opportunity to share with you the best of the best.

Enjoy!

My Own Advisor, Risk versus volatility, is there a difference?

Dividend Growth Investor, Six Dividend Paying Stocks I Purchased for my IRA

Dividend Monk, 5 Dividend Stocks Trading at Appealing Valuations

Dividend Mantra, Why I Love Dividend Growth Investing

I have also had the honor of recently participating in the following financial carnivals, have a look:

Carnival of Financial Planning at Making Sense of Cents

Carnival of Retirement at Midlife Finance

Carnival of MoneyPros at The Savvy Scot

Yakezie Carnival at Family Money Values

Carnival of MoneyPros at Financial Conflict Coach

Carn. of Financial Camaraderie at Freeat33

Carnival of Retirement at Dividend Monk

Did you enjoy reading this article? If so, I encourage you to sign up for my newsletter and have these articles delivered via e-mail once a month...and it's free!

Want To Invest Successfully In Only 15 Minutes a Month?

Here’s how you can invest successfully and spend only about 15 minutes a month on your investments:

• Keep it simple
• Ignore the media noise on TV, Internet, Radio, and Magazines
• Reduce the fees you are currently paying (knowingly and unknowingly) on your mutual funds

Keep it simple

Invest in quality dividend-paying companies when they are undervalued. Learn when a company is undervalued here. Quality companies are companies that are recession proof, consistently profitable, and virtual monopolies (I cover 7 other factors in my Simply Investing Course ), examples included Coca-Cola, McDonalds, Johnson & Johnson.

Ignore the media noise

The media’s priority is the same as any other corporation, to make a profit first and foremost. The media makes their money by selling advertising space (in print, online, or television). Remember bad news results in higher ratings which allow the media to charge more for advertising. The majority of investing “advice” is incorrect and not suitable for growing your wealth. Ignore the noise and stick to the fundamentals. There are only a few simple things which really matter, I call them the 12 Rules of Simply Investing, and everything else is just noise.

Reduce your fees

Mutual funds (including index funds) charge a fee called the Management Expense Ratio (MER). The higher the MER the more you stand to lose. In my opinion you will never achieve financial success by investing in high cost (high MER) mutual funds. The key is to avoid paying any MERs by investing on your own.

You don’t have to spend hours every week or month analyzing stocks reports. Once you’ve learned the core aspects of investing (by taking my course), you don’t need to spend more than about 15 minutes a month on your portfolio. Keep it simple, ignore the noise, invest in quality dividend-paying companies when they are undervalued and you will increase your financial wealth over time!

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Can You Retire On Dividends Alone?

Yes you can you achieve financial independence and retire on dividends alone. However it requires some planning and investing intelligently.

I’d like to share a blog post Dividend Growth Investor wrote about a year ago discussing the concept of retiring on dividends.

Dividend Growth Investor writes about the 5 important rules to follow in order to live off dividends:

1. Focus on companies that have a long history of paying dividends and raising dividends
2. Buy stocks when they are undervalued
3. Ensure that the company can afford to payout the dividends from strong earnings
4. Invest in financial healthy companies with strong sales, and a lasting durable competitive advantage
5. Build a diversified portfolio of stocks

Click here to read the complete article.

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Are You Investing in Recession Proof Companies?

Take a look at your investments, whether it’s in mutual funds, ETFs, index funds, or individual stocks, are you invested in recession proof companies? If you answered no, then you might be in trouble. Let’s take a look at what is a recession proof company and how do you invest in one.

What is a recession proof company?

The best way to describe a recession proof company is to look at companies that aren’t recession proof. For example, imagine we are in the middle of a recession or downturn in the economy, and there’s a good chance you or your spouse might lose your jobs, are you going to:

• Go out and buy a new car?
• Go on an expensive trip overseas?
• Watch a live concert, show, or hockey game?
• Buy a brand new TV, or next-generation smart phone?

The answer is going to be no! In each case you will try to save as much money as you can by:

• Keeping you existing car for a little longer, or buying a used car
• Staying home, or taking a local trip
• Watching the show or hockey game on television

Therefore car manufacturers, airlines, aircraft manufacturers, travel companies, consumer electronic companies and entertainment companies are not recession proof. Whenever there is a downturn in the economy these companies will suffer. So why would you want to invest in these companies? If your mutual fund or index fund is full of these companies then prepare yourself for mediocre results and high volatility.

Now imagine we are in the middle of a recession or downturn in the economy, and there’s a good chance you or your spouse might lose your jobs, you are still going to:

• Brush your teeth
• Use toilet paper
• Turn the lights on in your home when it gets dark
• Turn the heat on in your home when it gets cold
• Continue to eat

Regardless of which way the economy goes, you will still need to purchase food, toothpaste, toilet paper, electricity, natural gas and other essentials that provide you with food and shelter. The companies that provide these products and services are recession proof. Even in a recession these companies will continue to make sales and be profitable.

No one can predict when the next downturn or recession will occur, and no one knows how long it will last. Therefore it is in your best interest to invest in recession proof companies and ignore the rest.

Want proof?

Here are five sample returns from my portfolio. I invested in the following recession proof companies which I still hold today:

• TransCanada, 351%
• Walmart, 53%
• National Bank of Canada , 38%
• Johnson & Johnson, 22%
• Pepsi, 21%

How and when to buy?

The key to successful investing is to buy quality (recession proof) companies when they are undervalued. In a previous post I explained how to know when a particular stock is undervalued. Other qualities to look for are companies that are consistently profitable, and have low debt. In the Simply Investing Course I cover 12 key attributes which are important to know when making an investment decision.

Investing in recession proof companies is simple, easy, and the key to building your wealth.

 

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Monthly Blog Roundup - Bringing You The Best of the Best

Here is the monthly blog roundup for March.

There are a some really good bloggers out there, and this is my opportunity to share with you the best of the best.

Enjoy!

My Own Advisor, Three Investing Enemies

Dividend Growth Stock Investing, Kings of Dividend Growth

Dividend Monk, 3M Company (MMM) Dividend Stock Analysis 2013

Dividend Engineering, 3 Dividend-Friendly Foreign Countries

I have had the honor of recently participating in the following financial carnivals, have a look:

Finance Carn. for Young Adults at Money Life and More

Carnival of MoneyPros at Family Money Values

Yakezie Carnival at Aaronhung.com

Carnival of Retirement at Joe

Finance Carn. for Young Adults at Money Life and More

Yakezie Carnival at The Ultimate Juggle

Carnival of MoneyPros at Family Money Values

Carnival of Retirement at Midlife Finance

Carn. of Financial Camaraderie at Debt Roundup

Finance Carn. for Young Adults at 20s Finances

Yakezie Carnival at Debt Black Hole

Yakezie Carnival at Financially Digital

Carnival of MoneyPros at Nickel by Nickel

Did you enjoy reading this article? If so, I encourage you to sign up for my newsletter and have these articles delivered via e-mail once a month...and it's free!

Should You Keep Investing When Interest Rates Rise?

A reader recently asked:  

"The US cannot keep its interest rates close to 0 forever while the debt burden is increasing at a rapid rate. How would rising interest rates affect my "value investment for dividends" stock portfolio? Is it the right time to put serious money into dividend paying stocks if I stongly believe that US interest rates will rise and there might be a default in US debt and/or a massive inflation?"

Here is my reply:

Great question!

 

Broadly speaking high interest rates will cause stocks prices to come down, but not all stocks, and it will not last forever. I noticed that during 1979 to 1983 interest rates went very high, so I looked at 4 companies during the same period to see what happened to their stock price:

Coca Cola (KO)

1979: $0.95

1983: $1.00

Johnson & Johnson (JNJ)

1979: $1.57

1983: $3.10

General Electric (GE)

1979: $1.02

1983: $2.01

Boeing (BA)

1979: $4.91

1983: $5.03

In all four cases the stocks did rise, not by much but they did rise. In fact if you look at the same companies from 1979 to 1990 you will notice a much higher increase in share prices. Yes, higher interest rates will put downward pressure on stock prices, but over time the stock prices will recover.

Also remember that quality companies continue to increase dividends even during times of high interest rates.

Number of years of consecutive dividend increases:

Abbott Labs (ABT) 35 years

Coca Cola (KO) 46 years

Emerson Electric (EMR) 51 years

Johnson & Johnson (JNJ) 46 years

Procter & Gamble (PG) 54 years

 

Here are some other things to consider:

• according to Geraldine Weiss (founder of Investment Quality Trends) regardless of market conditions, it is always a good time to buy quality stocks when they are undervalued
• "But looking longer-term, there is one area of the market that should provide pretty decent protection against rising interest rates -- dividend-producing stocks. Stocks that regularly pay out dividends give you an extra shot of income, and because rising rates typically accompany a rebounding economy, that means these companies should have extra cash on hand to increase dividend payouts. Stocks that provide regular payouts should give you a greater chance of staying ahead of rising rates." (1)
  
• "As you can see from the above chart, the energy sector does very well when interest rates are low and rising. Energy also out-performs during secular bear markets." (2)
• if you believe that interests rates will rise avoid investing in REITs, and companies with high debt

Renato Anzovino, portfolio manager with C.F.G. Heward Investment Management in Montreal believes: "Stocks with high yields and low growth prospects would be most vulnerable if rates rise, he said, but those with growing earnings and dividends should hold up well." He also says: "The only area that is going to benefit [from high interest rates], I believe, is the life insurance sector. Life companies have been hammered by low interest rates, which depress the projected returns on their bond portfolios." (3)

High interest rates may depress stock prices, but this could be a great opportunity to pick some excellent companies when they become undervalued.

I find comfort in the fact that during high interest rates, dividends will continue to increase, and stocks prices will eventually recover. Remember you are a long-term investor, do not get caught up in short-term interest rate changes.

I will continue to invest in quality companies when they are undervalued, for the rising income (dividends) and long-term stock price appreciation.

 

References:

1. 

http://www.fool.com/retirement/general/2010/02/16/how-to-invest-when-the-fed-raises-rates.aspx 

2.

http://seekingalpha.com/article/494651-dividend-investors-need-to-protect-their-portfolios-from-interest-rate-risk

3.

http://www.theglobeandmail.com/globe-investor/investment-ideas/gauging-pain-of-rising-interest-rates-on-dividend-stocks/article4097648/

 

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What is Total Yield?

High dividend yields combined with stock buybacks give you “Total Yield” a term coined by Chris Brightman of Research Affiliates. Shawn Tully from Fortune has recently written a great article on Total Yields which appears in print (Feb 25, 2013 Fortune Magazine, page 31) and online here.

“Brightman sees dividends as a key metric -- but not the sole one. His latest brainstorm is a value-oriented methodology that screens not only for dividends but also for the impact of stock buybacks. In theory, when a company reduces its number of shares by, say, 2% while keeping profits and the price/earnings ratio steady, it should translate to a 2% increase in stock price. So Brightman adds the percentage of shares repurchased to the dividend yield percentage to calculate what he calls "total yield." He argues that stocks with the highest total yields are far and away the best buys on the market.”

Brightman offer two examples with a total yield of 7.3% and 5%:

“He's a fan of Exxon Mobil (XOM), which offers a 2.5% yield and which repurchased $20 billion worth of shares in 2012, or 4.8% of the "float." That's a 7.3% total yield.”

“Wal-Mart (WMT) is another Brightman favorite. Its yield is just 2.3%, but it offers buybacks of approximately 2.7%, for a total of 5%.”

In addition to Exxon and Wal-Mart, Bank of America has also recently announced it's buying back $5 billion worth of its own stock, equivalent to nearly 4 percent of the company.

Morale of this story: In addition to dividend yield, stock repurchases will also increase shareholder returns.

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More Dividend Increases

Dividend increases mean increasing income for you the shareholder. A dividend increase generally indicates that a company is financially healthy, and confident that it can continue to pay the increased dividend for years to come.

Here is a list of some recent dividend increases:

Apache Corp (APA) 17.65% increase

Ball Corp (BLL) 30%

Bank of Montreal (BMO) 2.78%

Equifax Inc (EFX) 22.22%

Home Depot (HD) 34.48%

Ingersol Rand (IR) 31.25%

Coca-Cola (KO) 9.80%

Limited Brands (LTD) 20.00%

Moody’s Corp (MCO) 25%

Omnicom Group (OMC) 33.33%

Pfizer Inc (PFE) 9.09%

Reliance Steel (RS) 20%

Sherwin Williams (SHW) 28.21%

TransCanada Corp (TRP) 4.55%

Texas Instruments (TXN) 33.33%

Wal-Mart (WMT) 18.20%

Did you enjoy reading this article? If so, I encourage you to sign up for my newsletter and have these articles delivered via e-mail once a month...and it's free!

Monthly Blog Roundup - Bringing You The Best of the Best

Here is the monthly blog roundup for February.

There are a some really good bloggers out there, and this is my opportunity to share with you the best of the best.

Enjoy!

My Own Advisor, Dividend Income Update

Dividend Mantra, Recent Dividend Increases

Dividend Engineering, Recent Buy Coca-Cola

Dividend Growth Stocks, 14 Stocks Taking Their Dividends Up A Notch

I have had the honor of recently participating in the following financial carnivals, have a look:

Y and T's Weekend Ramblings at Young and Thrifty.ca
Finance Carn. for Young Adults at 20s Finances
Carn. of Financial Camaraderie at Financial Conflict Coach
Carnival of Retirement at See Debt Run
Yakezie Carnival at The Amateur Financier
Carnival of MoneyPros at Money Pros

Did you enjoy reading this article? If so, I encourage you to sign up for my newsletter and have these articles delivered via e-mail once a month...and it's free!