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It’s been a gloomy week for markets across the globe. At time of writing the local bourse has shed more than 5% for the week, the US dollar is in decline and energy prices are on the rise.
With US interest rates remaining at all time lows and the threat of inflation looming, the US dollar continues to flounder as the US struggles to stomach the trillions of dollars flooded into the economy.
Australia on the other hand, has outperformed most other international markets. Interest rates have taken a hike and the world looks on with jealousy as this commodity rich country continues to power on ahead of rest..
But it was a comment on Thursday by ANZ CEO Mike Smith that caught my eye. Mike stated he felt the Reserve bank may have increased interest rates a little prematurely. Sure enough, in the last week we have seen the Australian economy react negatively to the recent interest rate rises, showing that we are far from immune to another downfall, and a double-dip recession is still a distinct possibility.
We have also seen some occurrences this week which we had not seen for several months. Most notably, we saw four consecutive days of decline and the general consensus being that the heavens may fall at any moment.
Should you be worried? Well, that all depends on your investment strategy.
DividendKey investors need not be worried. Markets will rise and fall. Provided you stay true to your plan and manage your risk, these volatile times mean nothing more than a bend in the road, on a path to inevitable success.
Let’s wind the clocks back a few months, when I was running a DividendKey class - we actually faced a very similar situation. It was the beginning of July and the ASX 200 was facing five consecutive days in the red. The same question was on everyone’s mind: have the good times come to an end?
Even if they had, it wouldn’t have mattered. Income investing is about buying the right stocks, with a long term view, whilst maximizing Dividends and making regular contributions. It turns out the market did continue from there, in fact the ASX 200 added on a tidy 30% gain in the following months.
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Regardless of what vehicle you choose to invest, investors seek assets having two main components - Capital Growth and Income Generation.
Those of you with property investments will see this is in the form of increasing house prices and rental returns.
Those who are investing in shares will see this as increasing share price and dividend payments.
There are a few distinct advantages however, in owning shares over the long term, particularly as a DividendKey investor.
Shares are easy to purchase and set up as a portfolio. Using the DividendKey formula, we purchase only extremely liquid stocks and there is no minimum start-up cost. Add on imputation credits and tax advantages through the use of margin leverage, and you have the recipe for an extremely robust portfolio which will outperform the market in just about any condition.
Don’t get me wrong, property is still an excellent investment and one which I advocate whole heartedly. But don’t let the constant commentary on market direction and short term direction steer you away making the right investments in your financial future.
So where will the markets head next? We all have our view and frankly, I’m not overly concerned. I have the ability to diversify at my will, take advantage of outperforming sectors and make regular contributions to a consistently growing portfolio.
For more information on the merits of income investing and the low-cost course which I believe should be compulsory for anyone approaching the markets over the long term, take a look at www.dividendkey.com
Make the markets work for you!
Andrew Page
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