Does anyone except me remember the Desert Rose Band? Probably not. Named for a beautiful flower that grows in arid climates, they (the band) recorded several albums, but were basically a 1-hit wonder with the song, “One Step Forward, Two Steps Back.” Catchy tune, but not inspiring for those of us trying to realize some market gains.
Stay with me here. My point is pretty simple – it reminds me of the stock market lately. Month after month, the market is striving to go up, but just can’t seem to hold gains. So through the ups and downs, we have the equivalent of one or two steps forward, and then one or two steps back, and often in the same week.
And now many investors are skeptical of dividends, because “market analysts” fear that the FED will raise interest rates. So let me assess this: the dividend stocks, which are paying 2% - 4%+, are to be shunned and sold off because interest rates might rise from about zero to about 0.25% APR? I can’t speak for all of you, but that is NOT going to make me want to run to the credit union and buy a load of CDs.
Looking for something intelligent to do with extra cash you have right now? While that may be a good problem to have, I can’t see doing things much differently than we have over the past year. There are several well-diversified ETFs available, with yields that are impressive by today’s interest rate standards. Also, with the recent spike in (government-reported) inflation, TIPs (U.S. Treasury Inflation-Protected Bonds) are starting to once again look tantalizing. Due to previously low government-reported inflation, TIP (the ETF which holds the bonds) has not yet paid any dividends in 2015, but it looks to me like the TIP ETF is getting a lot closer to resuming monthly payouts. These monthly payouts are a combination of two items; one that reflects changes in the Consumer Price Index (CPI), and the other reflecting underlying current bond interest rates.
We’ll know soon what the May market results will be, but I don’t see anything on the national or international scene right now that is screaming for a change in attitude or portfolio holdings. One of the biggest dangers is the possibility of getting dizzy watching the stock market gyrate. The DJIA is up 1.2% for the year, after losing 1.04% yesterday. So far today, it seems to be improving again. Since 1%+ moves are frequent this year, the equity market seems to be coasting along waiting for something to happen, and is seldom more than a day away from breaking even for the year.
Dividends are not the only reason to buy equities, but they are tangible and they add to our overall results. When the markets will move in a more definitive pattern is anyone’s guess. But hanging in there for now seems to be our best chance at participating when it happens. As our grandparents liked to say, “Patience is a virtue.”