Tax & Financial Consulting Services
Big Ben Scares the Market...Precious Metals om the Rise
Karibu (Welcome) G&G Readers,
It’s been busy in the markets this week. Do you even know that? If not, why? Aren’t you investing and trying to save to one day never to have to work again?
There is a saying, “problem with most folks is that they work hard for their money, but don’t know how to make their money work hard for them.”
BL: get some knowledge and learn how to make your money work harder than you.
So, what do I have in this newsletter for you to wrap up this wonderful 82 degree day here in Hampton Roads Virginia? The market has been quite busy this week:
Ben Bernanke reneges on the Hill … Gold and silver jump (chi ching) … Moody's and S&P warn of downgrade of the USD … why DRIPs are a great way to protect your portfolio … and States are starting to prepare for default…
After boosting the market on Wednesday by hinting at a third round of quantitative easing (QE3), Bernanke backed off yesterday. In his second day of testimony, Bernanke told the Senate Banking Committee, "We're not prepared at this point to take further action."
He also warned Congress about aggressive budget cuts, which Bernanke said could hamper the recovery even further…
“I only ask … as Congress looks at the timing and composition of its changes to the budget, that it does take into account that in the very near term the recovery is still rather fragile, and that sharp and excessive cuts in the very short term would be potentially damaging to that recovery.”
How much of a warning do you need folks that you ought to possibly think about protecting your money and protecting it outside of the US Dollar. Perhaps Bernanke was spooked by yesterday's big rally – especially the rally in gold and gold stocks. Now, he's reining it in.
And while stocks gave back their midday gains, gold and silver are still up. Gold hit a “NEW ALL-TIME HIGH” of $1,592.80 an ounce.
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While Mr. Market is reacting to the perceived ebbs and flows of liquidity, precious metals are unphased… They're trading as they should in the midst of a currency crisis. The metals market knows whatever Bernanke decides, the value of our currency will get much worse before it gets any better.
On the subject of a currency crisis, credit-ratings agencies are pressuring the government to resolve the debt situation. Yesterday, Moody's placed the United States' triple-A-rating on review for a downgrade. The company is worried the government may not raise the debt ceiling in time to avoid missed interest or principal payments. Moody's said it would downgrade our nation's debt to the "Aa" range – much higher than it deserves even today – and it wouldn't necessarily restore the top rating, even if default is "cured" quickly.
While Moody's is going public, Standard & Poor's, the other major rating agency, is allegedly warning the government in private that it may downgrade U.S. debt before a default. According to Ben White at the political news website POLITICO, S&P Managing Director John Chambers warned top Senate Democrats and the U.S. Chamber of Commerce that even if the Treasury avoids a technical default, S&P may downgrade the debt.
Again ... how much of a warning do you need?
You may recall, several months ago, I sent out a newsletter asking if people knew or understood how valuable Dividend Reinvestment Plans (DRIPs) could be in your portfolio. I know most of my readers are hungry for super-safe ways to grow their capital and collect steady and growing income. DRIPs are the best way to do that.
The response was overwhelming. For most of you, buying stocks that constantly grow dividends and reinvesting those dividends back into the stock, is the best way to build your fortune. In case you're not familiar with DRIPs, let me review again why you might want to consider having them in your portfolio…
Most people know DRIPs are a great way to put your stock portfolio on automatic pilot… so it just grows and grows without you having to do much of anything.
DRIPs are simple. Most of the time, you can just call your broker up and tell him you want to reinvest your dividends or set it up automatically should you bypass the the broker as I recommended to my G&G Investment Society (GGIS) members. After that, you won't have to take any action at all to have your cash dividends reinvested in the stocks that paid them. Over time, you'll make a lot more by reinvesting dividends than you will by simply holding the shares without reinvesting.
Suppose you had a stock like Altria Group, the tobacco company, which is one of the all-time great dividend payers. It has raised its dividend every year for the last 45 years. Say you bought Altria today and wanted to reinvest your dividends…
Today, Altria's share price is a little less than $27 and its dividend yield is around 5.7%. Over the last 10 years, the dividend grew by about 8.5%. Let's assume it keeps up that modest growth rate.
Suppose you just buy Altria today and don't reinvest your dividends. Suppose the share price grows 5% a year. After 10 years, you'd earn a total average annual return of about 10% a year. Not bad!
But if you reinvest the dividends, you'll earn about 12.6% a year. That's great. It's the difference between a $2,700 investment that turns into $7,000 in 10 years without reinvestment… and turning that same $2,700 into more than $8,700 with reinvestment.
But it actually gets even better for the most patient investors. If you kept on reinvesting at those rates for another 10 years, something really amazing would happen. Your return without reinvestment would fall to about 9% per year for the 20-year period… and your return with reinvestment would rise to about 14% a year for the 20-year period. You could turn an investment of a little less than $2,700 into more than $37,000.
When you combine great businesses that grow dividends with dividend reinvestment, time is the investor's best friend. With just about any other strategy, time is a potential killer because you're not compounding at the highest possible rates. And let's face it, with the government borrowing and printing money at the highest rates ever, you MUST earn as big a return as possible on your money. YOU MUST AND HAVE TO BEAT INFLATION to keep up.
For the overwhelming majority of investors, buying World Dominating Dividend Growers like recommended in my GGIS portfolio and combining them with DRIPs is the easiest, safest way to achieve the highest possible long-term returns.
If you want to know how to implement this strategy and not already a GGIS Subscriber what are you waiting on? Sign up today!
As always…feel free to pass this information on to anyone you think is interested in increasing their tax & financial IQ.
If you need a one-on-one consultation to learn how to implement these investments or any other on the GGIS portfolio, feel free to contact me to setup an appointment.
If you missed any past G&G newsletters, click on link below for the archive:
Metta (Wishing You the Best)
Asar Gary Gray
Tax & Financial Consultant, RFC
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LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. Nothing herein should be considered personalized investment advice. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.