How to Avoid 'Stockholm Syndrome' When You Buy

You just bought a new TV.
The thrill of the purchase is gone, and the TV is sitting on your living-room floor when the doubting begins.
"Should I have gotten the 44 inch instead of the 42 inch?" you ask yourself. "Should I have waited until 5D comes out next year?"
And then the worst question of all: "Did I just waste my money?"
Whether it's buying a TV, a house, or an ocean cruise… spending a lot of money triggers a range of emotions. Controlling these emotions – often called "buyer's remorse" – can mean the difference between a good investment and one that you'll regret and lose money on.
It's the same sort of thing with buying stock in a company…
"Was my timing right?"
"Did I just buy a lemon of a stock?"
"Is the market about to collapse?"
And the underlying question is, "What if I lose money?"
On the flip side, another emotional response is to immediately justify the purchase. This is called "post-purchase rationalization." We focus on the strengths of the product we chose and overlook its faults. We might also dwell on the weaknesses of the alternatives.
This also happens when you buy a product – or a stock – and then see a few weeks later that it has gone on sale. Had you waited a few weeks, you could have bought the same TV, or stock, for less. Then your brain will try to convince you that you needed to make the purchase at the higher price. (After all, you did need the new TV to watch the big game that day.)
With practice, we can convince ourselves that any purchase was the "right" one – no matter how flawed it really was. Post-purchase rationalization – also known as "Buyer's Stockholm Syndrome" – can lead to bad buying decisions in the future.
Stockholm Syndrome is the psychological condition that occurs when hostages feel sympathy for and attachment to their kidnappers. In this case, the customer (the "hostage") is held captive by the product he buys (the "kidnapper"). And the buyer eventually convinces himself that he likes the product.
Buyer's remorse and post-purchase rationalization are both dangerous for investors.
Beating yourself up after buying something isn't going to change the fact that you made the purchase. And it may lead to an impulsive decision to return (or sell) a product (or stock) that was in fact a well-reasoned and smart idea in the first place.
Second-guessing yourself to justify a trade that isn't working out can be just as damaging. This can lead to refusing to accept that you've made a mistake and prevent you from learning a valuable lesson from the purchase.
It might also stand in the way of sticking to your stop loss. Selling a losing stock is an acknowledgement of error. But if you're too caught up in explaining to yourself why it was actually a good idea, you might violate the most important rule of investing: Don't lose money.
In fact, ownership leads to emotional attachment. We tend to place a higher value on the things that belong to us – whether it's a house, a car, a dog, or a stock. This also makes taking a loss on an investment an emotional challenge.
Below, I've listed three ways to prevent buyer's remorse and post-purchase rationalization from affecting your investment decisions. You should…
•   Recognize your mistakes. In other words, know how to take a loss and make sure that you learn from the outcome. Examine exactly why a certain position lost you money, rather than trying to convince yourself that you were right all along, and that "the market" was wrong. (The market is never wrong: The investor who loses money based on the idea that he knows more than the market is wrong.)
•   Avoid impulse buying and selling. Researching a stock before investing will help to reduce buyer's remorse, as you'll later be better able to explain to yourself why you made the decision. You'll also feel less need to rationalize the purchase. Selling based on a gut feeling that you were wrong in the first place is just as bad.
•   Follow your own discipline. Recognizing a bad trade in time might prevent a mildly negative position from turning into a monumental loss. If you hit your stop loss, sell.
As with any investment pitfall that we've discussed, taking emotion out of the investment process is a critical ingredient for making money.

Be objective. Don't let your feelings cloud your judgment.


Kim Iskyan

Editor's note: Kim and his Truewealth Asian Investment Daily team recently published a report to show how emotions have gotten in the way of even the world's most successful investors. Find out how you can gain access to this report right here. And if you'd like to sign up for their free daily e-letter, click here.


Source: DailyWealth

Stocks Are Near All-Time Highs… And You Have Nothing to Fear

Stocks are knocking on the door of new highs as I write…
This scares most folks – they don't want to buy anything at record-high prices. Instead, they prefer to buy at new lows.
But that doesn't mean you should follow them…
Instead, I strongly urge you to NOT be like "most folks" in this case. They don't know their history…
In short, we know from looking at more than 80 years of stock market history that buying at new 12-month lows is one of the worst possible investing strategies… And buying at new 12-month highs is one of the best.
These conclusions might surprise you. They would surprise most folks. But I assure you they are correct.
Let me explain…
James O'Shaughnessy literally wrote the book on what works on Wall Street. He titled it: What Works on Wall Street.
In the section called "Buying the Worst-Performing Stocks," he writes, "If you're looking for a great way to underperform the market, then look no further."
One particularly bad strategy was buying the worst-performing 10% of stocks over the past 12 months. Buying these stocks and holding them for five years underperformed the "buy and hold" strategy 93% of the time since the 1920s.
In short, don't buy the worst-performing stocks!
But what about when the market is hitting all-time highs, like today?
New highs tend to inspire fear, not confidence. But the normal reaction here is wrong…
We studied the data going all the way back to 1927 – as long as the S&P 500 has been around. It turns out that stocks hit new highs around 10% of the time.
New highs aren't as uncommon as you might expect. And what happens after new highs is also unexpected…
In short, new highs lead to new highs, which lead to new highs.
Again, we looked at the numbers back to 1927. If you had simply bought stocks each time they hit a new all-time high, and then held for 12 months, you would have outperformed the typical ("buy and hold") one-year gain.
The table below shows the returns…
After new high*
All periods*
* Not including dividends.
The outperformance doesn't look amazing… but you're in this "trade" 10% of the time, so it's hard to see dramatic outperformance anyway.
What is interesting is how consistent the gains are – stocks have been higher 70% of the time, a year AFTER hitting a new all-time high.
So if you're scared of new highs, our message is simple: don't be.
History is clear. New all-time highs are a good thing for stock prices, based on history.
Good investing,

Source: DailyWealth

Why We Just Sold Platinum

We bought platinum in mid-January in my True Wealth advisory, and we sold it less than two weeks ago – for a 35% profit in seven months.
Why did we sell?
Platinum is doing well, right? Everybody loves it now, right?
Let me explain…
WHY we sold is the important part…
If you want to be a great trader or investor, you need to think about this: A good trade is made up of a good buy AND a good sell.
Most people spend 99% of their investing thought on when and what to buy… But almost zero thought goes into when to sell.
What's your selling strategy? Can you define it?
You ought to define your selling strategy – up front – even before you enter a trade. That's what we did with platinum. And as I said, it led to 35% profits in seven months.
We bought platinum in January when it was cheap and hated. To briefly explain our platinum buy…
1.   It was near-record cheap based on history – trading at nearly a $300 discount to gold. And,
2.   It was extremely hated… We saw a multi-year low in the shares outstanding of the main platinum exchange-traded fund (ETF), so we knew investors had given up on platinum.
In January, I laid out our trading strategy fairly clearly. I said, "Buy the ETFS Physical Platinum Shares (PPLT) today. Use a 10% stop loss. Plan on selling when the fund is up 30% or in 18 months, whichever comes first."
Importantly, we laid out our sell strategy right from the outset. When you read what I wrote, you can see that we had three defined exit points…
1.   If we were wrong (using a 10% stop loss),
2.   If we were right (selling when the position went up 30%), and
3.   We had a "time" stop (knowing when to throw in the towel on the trade).
In the end, we got it right. We were up 35% in just seven months – and we sold. It was absolutely the right thing to do… as platinum moved from "hated" to "loved."
Today, investors are overly bullish on platinum prices. We can see this by looking at the Commitment of Traders ("COT") report for platinum.
The COT reports tell us what the "real money" is doing – what futures traders are doing with their own money. When traders all agree on an expected outcome, the opposite tends to occur.
Today, traders are all betting on higher platinum prices. And the last two times they were near this level of optimism, platinum prices crashed – by $300 per ounce or more in less than six months. Take a look…
Today's bullish bets are now the most extreme in history.
In short, platinum is up big… And now everyone is betting on higher prices. This is NOT when we want to own platinum…
So far, we have been exactly right about this. Platinum has fallen dramatically since we sold.
We want to own it when investors hate it, not when they love it. So we are comfortable with the trade we made – getting out when platinum was overly loved.
This brings me to the big question: What's your exit strategy for each of your trades?
What? You don't have one? Why not? It's time to get on it!
Here's a simple checklist to get you started…
1.   How much am I willing to lose? (In platinum, we were willing to lose 10% before we "cried uncle.")
2.   What's my price target? (In platinum, our target gain was 30% – which was three times our downside risk.)
3.   How long will I give this trade before I pull the plug? (In platinum, we said 18 months.)
A good trade is made up of a good buy and a good sell… You probably already have the "buy" part down. But what are you doing for the "sell" part?
I urge you to go through each of your stocks and put them through the three questions on my simple checklist. Use my platinum trade as your blueprint.
You'll be a lot better off if you do. You won't be holding and hoping… You won't be forever questioning, "Is this the right moment?" And most important, you'll have an exit plan.
You'll be better off for it, I promise…
Good investing,

Source: DailyWealth

How to Become a Stock Market Landlord

Editor's note: So far this week, we've shared some of Doc Eifrig's favorite vehicles for generating income… including dividend-paying stocks, closed-end funds trading at a discount, preferred shares, and REITs. Today, he shares an advanced trading technique that can safely generate double-digit annual income streams…
If you can understand real estate, you can understand the greatest income-producing tool for retirees.
Right now, my Retirement Trader readers understand this tool… These are regular investors (just like you). And they're using this tool to pull thousands of dollars out of the market every month.
Today, I'll show you how you can do the same…
It all starts with the familiar real estate idea of offering owners a lower price than what they are asking…
This strategy involves one of the most powerful – and most misunderstood – financial tools ever created: stock options.
When most folks hear the words "stock options," they think of risky bets on volatile moves in the stock market. Nothing could be further from the truth.
A stock option is simply a contract between two people. One type of option is called a "put option." The person who buys a put has the right – but not the obligation – to sell a stock at a given price, in a given time period. The person who sells a put has the obligation to buy a stock at a given price, in a given time period.
Done properly, selling put options is one of the greatest money-making strategies ever created. And it's simple, once you get the hang of it.
By selling puts, you can collect regular cash payments by offering to buy stocks at a discount.
Most of the time, these "discount" offers are not accepted. Most of the trades work out so that my readers get to keep the cash payments and walk away. But my service's history shows that around 20% of the time, our discount offers are accepted… And we are obligated to buy the shares.
When that happens, we turn into "stock market landlords."
Conventional landlords collect regular income on properties they own. It's a time-tested plan for getting a good, double-digit annual yield on your money. You also collect income on properties you own. Except these properties are in the stock market.
That means that unlike conventional real estate investing, this type of investing doesn't involve bank loans, fixing toilets, or dealing with tenants at 2 a.m.
Here's how it works…
After you buy a stock, you can enter the options market and sell someone the right to buy your stock at a higher price in the future. In return for agreeing to sell your stock, you collect cash upfront.
And no… using options in this way has nothing to do with the risky, "all or nothing" options strategies many people use. This is a very safe strategy. It's called "selling covered calls."
Again, this amounts to buying shares, then selling someone else the right to buy the shares from you at a higher price. I know it might sound like a strange transaction. But it happens millions of times a day…
Let me walk you through some numbers so you can see how useful a tool it is if you're looking for safe income…
Back in March, I told my Retirement Trader readers about a company that was thriving thanks to cheap oil. It's a major business with global operations, and it's earning a lot more now that oil prices are low. That company was Dow Chemical (DOW).
At the time, you could buy DOW for $50.88 per share. Let's say you bought 100 shares at the time, for a total of $5,088.
Right after buying your shares, you were able to sell someone the right to buy your shares from you for $50 per share any time over the next two months. You collected $2.13 per share ($213 per contract) for selling that right. That gave us an initial outlay of $48.75 (the $50.88 stock price minus the $2.13 we received from the call premium).
In May, DOW was trading for more than $50. So you would have sold at $50 and kept the $213 you got for selling the call… like a landlord selling the property to his tenant.
Because we sold covered calls with a strike price below the share price, we lost $0.88 per share when shares were called away from us. So our net gain was $1.25 (the $2.13 premium minus $0.88 per share). That's a safe return of 2.5% ($1.25 divided by the $50 strike price) in less than two months.
Now… if DOW hadn't been trading above $50, you would have been able to do pretty much the same trade all over again.
Do this "2.5% in two months" trade six times in one year and you can make 15%. You'd also collect DOW's safe 3.5% regular dividend. On a $50,000 stake, that would generate more than $7,000 a year.
And you need to understand… this trade wasn't just hypothetical. In May, my readers closed their sold covered calls on DOW for a 2.5% gain in less than two months.
We're collecting cash by making discount offers that are rarely accepted… And when they are accepted, we're able to use the covered-call strategy to generate even more cash.
Of course, this strategy takes a little bit more work than what you might be used to… But as many of my readers have discovered, it's simple to learn… and simple to use once you get the hang of it.
And becoming a "stock market landlord" is well worth the extra effort.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: Covered calls are a great way for retirees to generate extra income. But Doc recently published a presentation detailing another vehicle for income investors that yields as much as 8%… And on September 16, shares could begin to soar. Learn more about this opportunity right here.

Source: DailyWealth

One of My Favorite 'One Click' Ways to Turn Real Estate Into Income

Editor's note: By now, our colleague Doc Eifrig has shared three of his favorite income strategies: dividend-paying stocks, closed-end funds trading at a discount, and preferred shares. In today's essay, he discusses another safe, "one click" investment that yields far more than your average income vehicle…
It was the worst cross-country American road trip ever.
In 1919, shortly after World War I, a U.S. Army convoy of about 80 vehicles and 300 men started out from Washington, D.C. to San Francisco. It took the group more than two months to travel 3,250 miles – at a speed averaging less than six miles per hour.
Half the distance was over dirt roads, desert sands, and mountain trails. Trucks overturned, ran off the road, and sank in quicksand – the Army recorded more than 200 such accidents. A young Dwight D. Eisenhower, then a lieutenant colonel, went along as a Tank Corps observer. He later cited his experience to persuade Congress to pass the Federal-Aid Highway Act of 1956.
Today, the Interstate System crisscrosses the U.S. with more than 46,000 miles of high-speed roads. It slashed transportation time between major cities… sparked a boom in road travel… and changed the way our economy works.
Highways allowed folks to move out of the urban centers, driving the postwar suburbanization population shift. This ramped up home ownership – the biggest single asset of many American households.
Today, we'll examine one of my favorite ways to invest in real estate…
Real estate has been the No. 1 wealth-builder for Americans for years. In a country with an economy driven by free-spending consumers, most families treat their home as their biggest savings account.
Real estate makes sense as an investment. It's scarce. Individuals can borrow cheaply to buy it. It's a productive asset, meaning it can be rented out or lived in. And the best-performing index over the last 15 years is the Dow Jones Equity REIT Index. It has compounded at 11% per year – despite its 70% crash when the housing bubble popped…
Real estate investment trusts (REITs) let us take advantage of the wealth-building power of real estate without the downsides.
With REITs, you can diversify between scores of properties with a single share, rather than needing to put hundreds of thousands of dollars into a single home. You can sell your shares in minutes with a simple broker's fee. You don't need to find tenants, collect rent checks, or do any maintenance work.
REITs follow a simple equation of supply and demand. When more tenants need to rent real estate and there's less of it around, prices rise and property owners earn more money. That's what is happening right now, driving profitability up.
More jobs mean more profits for REITs. When people get hired, they want offices or industrial space to work in. Not only is unemployment at 4.9%, but the total number of employed people has been rising, and even the labor force participation rate has risen from a 30-year low.
And when folks start making money and the economy gets better, they move out of their parents' basements and into their own apartments. Over the last year, the average monthly new-household formation has averaged more than 1 million. Three years ago, it was 832,000.
Meanwhile, construction is only now starting to pick up. After the property boom between 2004 and 2007, construction spending collapsed. New buildings didn't get built. But demand for buildings has grown. We've added 20 million new people to the country in the last decade, according to the Census Bureau.
This growing demand and stagnant supply has led to higher occupancy rates – currently at more than 93% across all REITs, according to the National Association of REITs.
And when properties are full, landlords have more pricing power. In fact, rents on residential apartments are up 16% over five years, according to real estate data provider Reis.
Best of all, REITs still pay a reasonable yield. The MSCI U.S. REIT Index yields around 4.4%… far more than the 10-year U.S. Treasury securities, which yield around 1.6%. That's why I recently recommended a pair of REITs to my Income Intelligence subscribers… and why you should consider adding some REITs to your portfolio today.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: Doc recently published a presentation explaining why $100 billion will begin to flow into REITs starting next month. For more details about this opportunity – and to learn how to gain access to Doc's favorite REIT investments – click here.

Source: DailyWealth

An 'Odd Duck' Investment That Can Save Your Portfolio in a Crash

Editor's note: Dividend-paying stocks and closed-end funds trading at a discount are just two ways to safely generate income. Today, Doc Eifrig shares an investment with bond-like safety and stock-like upside…
The market has been unpredictable this year…
It trades up a bit… then back down… only to repeat the process a few months later with fears of a new crisis. There are new worries about a global slowdown… when the Fed is going to raise interest rates… or what might happen with the presidential election.
But one asset class lets you ignore what's happening in the market and still get paid… often double or even triple what you might get paid if you simply bought a stock.
Even better, you won't have to worry about that regular payment changing. And buying this investment gives your portfolio a margin of safety that stocks can never provide…
This hybrid investment is a preferred share, or "preferred."

Like a common stockholder, you are a partial owner of the business. But rather than hoping for increasing dividends, preferred shares have an agreed-upon dividend rate that can be two or three times as high as a typical stock dividend.

You give up any price appreciation there may be in the stock, but you can earn a 5%-6% yield with a preferred… compared with 2%-3% for regular shares.

Now, if you were a bondholder, the company would pay you each interest payment or risk default. Preferreds don't have the same guarantee. A company can suspend its preferred dividends. But this rarely happens… And the company is barred from paying any dividends on common stock until it meets its preferred-dividend obligations. 

As a rule of thumb: If you find a stock with a safe dividend, you can bet that the preferreds are even safer.

This arrangement is why preferreds are described as a cross between a stock and a bond.

The great thing is that even in worst-case scenarios, preferred shares are safe. They tend to hold their value… and quickly bounce back.

During the financial crisis, a diversified portfolio of preferreds did drop… but quickly regained its value. Thanks to the income, preferred shares rallied back while bank stocks lagged far behind. (Most preferred shares are issued by banks and other financial companies.)
Over the long term, regular stocks generally beat preferred shares for total return. But if you're looking for safety and income, it's a fair trade to make.

If you need to generate income today… at yields that are higher than what a bond pays and still have a measure of safety… then preferreds are a great investment.

If you want to get started, there's one last thing to note… When you go to purchase a preferred share, they aren't always easy to find on your broker's platform. Each brokerage has a different format for the ticker. If you have trouble finding the one you want, call your broker and ask for the symbol – then place your order online (to avoid the fees of ordering over the phone).

This extra step might put some folks off… And that's a good thing. If people don't want to make the effort, fewer will buy preferreds, keeping prices down.

Preferreds offer a higher interest rate, long-term security, and steady payouts. This "odd duck" investment is the perfect way to guard your portfolio in the face of uncertainty today.

Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: Preferred shares are one of Doc's favorite income investments. He recently put together a presentation explaining an opportunity in another little-known sector of the income market. Get the details – and learn why shares will soar starting on September 16 – right here.

Source: DailyWealth

The Closest Thing to 'Free Money' in the Stock Market

Editor's note: We're continuing this week's series with another great, safe way to generate income in today's low-interest environment. Yesterday, Doc discussed the power of dividend-paying stocks. Today, he shares the absolute safest way to "pull one over on Wall Street"…
I remember the moment I became an investor.
I was idling in line at the drive-through window of my local bank, sitting in my '63 Buick Electra. I was listening to the radio while I waited to deposit my paycheck from the steakhouse, where I had climbed up to baked-potato chef.
As I inched toward the vacuum tube, the AM radio talk-show host promised to reveal the simplest trick to making money in finance.
He explained that it was a way to buy a dollar of assets for $0.80. It seemed too easy and too obvious. If I bought at $0.80 and the price traded up to the full $1 value of the assets, I would enjoy a "natural" 25% gain on my money. I didn't have to do anything except wait.
I drove off from the bank convinced. And within days, I opened up my first brokerage account. I bought a few hundred dollars' worth of that fund… I don't remember the name. But I do remember how I felt that day.
It was the first time I took advantage of an opportunity to create money seemingly out of thin air and pull one over on Wall Street.
Since then, I've spent years doing the same thing over and over again…
If you haven't guessed it yet, I'm talking about closed-end funds (or "CEFs"). Here's how they work…
First, a fund company and a portfolio manager decide to create an investment vehicle for a category of investments (like municipal bonds). To get the money to invest, the managers go to the stock market and hold an initial offering. They'll sell 10 million shares at $10 each. Investors now hold shares of the fund, and the managers have $100 million to invest. The managers take that money and buy $100 million worth of municipal bonds according to their strategy.
Now, here's where things get interesting… At this point, the value of the CEF's shares and the price of the shares can (and do) diverge. That's because the shares trade openly on an exchange, so they are priced independently from the underlying value of the securities the fund holds.
Remember, the value of the shares comes from the market value of each individual security it holds (in this example, each municipal bond). This is what we call the net asset value (or "NAV").
If the bonds rise in value to $110 million, then the NAV of each share becomes $11. But the CEF's share price in the market doesn't have to go to $11 right away. The price is determined by whatever people are willing to pay for shares in the market. Shares could still trade for $10 or $10.50. They could even trade for more than the actual value, say $12… meaning people are paying extra to invest in the bond portfolio.
Think about it… if the value goes up to $11, but the shares still trade at $10, you can buy $1.10 worth of assets for $1.
It's not hard to see why this is the easiest way to become a value investor. You don't have to project future earnings, sales, or price-to-earnings ratios on an individual stock. When you spot a CEF selling for cheaper than its value, you get to buy it at that price… at a discount to its true value.
Every day, you can find hundreds of funds trading at a discount to NAV. At any time, the average fund sells at a discount to its NAV.
Right now, the average fund is trading for around a 5.5% discount to its NAV.
You can find which funds are trading at a discount on Just enter a fund's symbol and you can see whether it's trading at a premium or discount to its NAV.
We've used this strategy in my Retirement Millionaire advisory to buy shares of the Nuveen AMT-Free Municipal Income Fund (NEA) in October 2008. At the time, investors were fearful of municipal bonds for reasons that we thought were nonsense. Because of those fears, the fund traded at a 24% discount to the actual bonds in its portfolio.
Since then, municipal bonds have performed well. Today, we're up around 120% on one of the safest investment classes in the market.
You don't have to be the next Warren Buffett to see why investing in CEFs trading at a discount to the value of their assets is such a winning strategy.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: Closed-end funds should be a staple in any income investor's portfolio. But Doc has found another little-known income vehicle that yields up to 8%… and on September 16, an estimated $100 billion will flow into this sector, pushing shares much, much higher. Learn more about this opportunity right here.

Source: DailyWealth

The Ultimate Cheat Sheet to Find the World's Best Dividend Stocks

Editor's note: It's hard to find safe, steady income today. But that's where our friend and colleague Doc Eifrig comes in. Doc scours every corner of the market for the safest ways to generate income. This week, we're sharing some of his top ideas. Today, we're starting with the world's safest stocks…
If paying real cash to shareholders repeatedly is the sign of a strong business, paying more and more cash each year is perhaps the strongest sign of all…
Stock prices may go up or down. But if you invest in a special type of dividend stock, the income streams only go in one direction: up. And they go up year after year, no matter what crisis the news is talking about this week.
So… How do you find these stocks?
Luckily, all it takes is the simple click of a mouse. Below, I'll show you a simple dividend-investing shortcut that will help you find the world's greatest dividend stocks…
Let's get started…
Financial-services and research giant Standard and Poor's (S&P) maintains an index of companies that have not only paid consistent dividends but have also increased their dividend payment each year for the past 25 years. They are called the "Dividend Aristocrats."
For investors who reinvest dividends, the effect of growing dividends is even stronger. You are taking dividends to buy more shares of a company that is constantly paying bigger dividends… with which you can then buy even more shares.
As a result, the index outperforms the market handily…
All of the 52 Dividend Aristocrats are large and well-established members of the S&P 500, with average market caps of more than $60 billion. The index includes many names you may know from your daily life, like food company Hormel Foods (HRL), spice maker McCormick (MKC), and toolmaker Stanley Black & Decker (SWK).
You can gain quick exposure to all of the Dividend Aristocrats by purchasing the ProShares S&P 500 Dividend Aristocrats Fund (NOBL). The fund has low turnover, a relatively low expense ratio of around 0.35%, and currently yields about 1.5%.
If you're looking for individual stock ideas, the list of Dividend Aristocrats is a great place to start. While S&P itself won't give you the full list (it wants you to pay for it), the ProShares fund has to disclose all of its holdings. So you can find the current Dividend Aristocrats right here.
S&P also tracks a more aggressive index called the "High-Yield Dividend Aristocrats." This list tracks stocks that have raised their dividends for at least 20 years, and it expands its pool to include smaller companies that are in the S&P 1500.
That means the average market cap drops to around $40 billion, with some as small as $2.3 billion. You can use the SPDR S&P Dividend Fund (SDY) to invest in these stocks with a 0.35% expense ratio. With smaller stocks in play, this fund is riskier than the traditional Dividend Aristocrat fund, but it pays a higher yield at 2%.
Collecting dividends should be a central feature of your investment philosophy. Understanding how they work and how to evaluate them is the first step to becoming a successful investor.
If you're looking for a one-stop shop when it comes to dividend investing, the funds I mentioned above are a great place to start. And simply taking a look at their holdings is the ultimate "cheat sheet" for discovering the best dividend stocks in the world.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: Dividend stocks are a great option for income investors. But Doc is even more bullish on another area of the market that sports yields of 8% or more. Learn more about this incredible, little-known opportunity by clicking here.

Source: DailyWealth

How to Grow Your Wealth for Decades Without a Single Losing Year

Editor's note: All week, we've shared our favorite wealth-building essays from self-made millionaire Mark Ford. (If you missed them, you can find them here, here, here, and here.) We're concluding the series with a strategy Mark says you can use to make sure you never lose money again…
Maybe I'm lucky. Or maybe it's just common sense.
I've been involved in the investment-advisory business for 30 years. And except for a few early mistakes in buying real estate, the big financial hoaxes and bubbles that devastated so many investors never burned me.
That made a huge difference over time. It allowed me to grow my net worth year after year without a single year of loss.
I learned several lessons about growing wealth and avoiding the biggest mistakes average investors make…
The financial life of the typical investor is marked by a plethora of hopeful speculations. Only a few dozen, at best, achieve their promise. My investment history is less exciting but more profitable.
I get into trends only after they're proven, get out as soon as they don't make sense, and I turn my back on nine out of 10 opportunities that come my way.
For example, in the 1980s, penny stocks were all the rage. The financial press was full of stories about investors who got rich by buying little-known companies at $0.50 per share.
My boss invested in one and tried to convince me to do the same. I was tempted… But something inside me said to let this ship pass me by.
I'm glad I did. My boss, a wise investor, lost 100% of his money on that deal. It turned out to be a scam.
I remember thinking, if a sophisticated investor could be fooled by one of those cheap stock deals, then I stood no chance.
Another example: the recent real estate bubble. By that time, I had been investing in real estate for more than 10 years. I knew the game. I had made a lot of money.
But by 2006, the houses I had been buying were selling for 20 times their yearly rentals. So I knew it was time to get out.
I stopped buying, and I advised my friends to do the same. They thought I was crazy. I'm sure they wish they had listened to me now.
I'm telling you these stories not to brag but to illustrate an important point: You don't have to be a sophisticated investor to avoid making big investment mistakes. You can do so by applying a little bit of common sense.
Here are the five biggest mistakes most ordinary investors make…
1) Being swept away by exciting stories.
The business my boss got suckered into had an amazing story. A company in Central America was turning beach sand into gold. The company had "proof" of their success – in the form of audited financial statements, geologist reports, and endorsements from investment experts.
My partner even went down there to see the operation. He saw the sand going in and the gold dust coming out.
I didn't invest because the story sounded so fantastic. I remember telling him, "This sounds like alchemy." I didn't know anything about geology or gold, but I didn't need to. The story itself was just too crazy.
When I hear stories like that nowadays, I'm totally turned off. One part of my brain might get excited, but the smarter part tells me, "Stay clear!"
2) Investing in businesses you don't understand.
My boss was a sophisticated investor. He had his own seat on the stock exchange when he was in his 20s and had been successfully investing since that time. But he knew nothing about gold mining.
His ignorance allowed him to be duped by the reports and the fraudulent factory tour. The scam was exposed by a few people in the mining business. They understood the industry and knew how to read reports with the sophistication of experience.
If you don't understand the business you're investing in, you're investing blindly.
3) Allowing yourself to be bullied by good salespeople.
I mentioned that I made some bad investments early in my real estate career. They were due to a combination of the two mistakes I just enumerated. Plus, I buckled under pressure from a real estate broker who also happened to be my landlord and – I thought – my friend.
I agreed to make the investments even though I had a hunch they wouldn't work out. I ignored my instincts because she was so good at manipulating my emotions.
Nowadays, whenever someone tries hard to sell me something, I take that hard-selling as a signal: Stay away!
4) Investing in trends too late – when the only chance of making money is to find "the bigger fool."
I got into real estate investing at a good time, when prices were already going up but the values were still good. I made a lot of money as the market rose.
When I could no longer buy properties at eight or 10 times yearly rentals, I realized the only way to profit was to ride the bubble to the top.
But riding a bubble when the economics are bad is a fool's game. Your only chance of winning is to find someone else willing to buy you out… someone who knows less about the market than you do.
Insiders call this the "bigger fool theory." You would think anybody with common sense wouldn't fall victim to this impulse. But millions of Americans (including bankers and brokers) did.
There's a time to get into a trend and a time to get out. Neither is particularly difficult… so long as you pay attention to the fundamental economics of the deal and ignore the excitement caused by the bubble.
5) Investing without a way to limit your losses.
Sometimes, even if you use your common sense – and avoid the four mistakes I've already explained – you can lose money because something unpredictable happens.
To avoid this, I have a rule: I never get into an investment unless I have a way out.
When you're investing in a business deal, that "way out" might be a buy/sell agreement.
When you're investing in real estate, the way out is the income you can get from renting it if you can't sell it for any reason.
When you're investing in stocks for yearly gains or income, the way out is the trailing stop loss.
There is always a way to limit your downside as long as you identify what that is before you make the investment – and stick to it. Even if you feel like you shouldn't.
Those are the five biggest mistakes ordinary investors make. As you can see, they're all pretty obvious – the kind of mistakes you can avoid by applying common sense. Avoiding these mistakes is part of how I've managed to get richer, year after year.
Think about your own investment experiences and the investments you're making right now. Ask yourself honestly: "Am I making any of these five common mistakes?"
Mark Ford
Editor's note: If you're interested in growing your income safely, we can't recommend the Palm Beach Letter advisory enough. They recently put together a presentation detailing how to start generating hundreds or thousands of dollars a month in extra income. Watch it here.

Source: DailyWealth

Are You Making This Common but Costly Retirement Mistake?

Editor's note: This week, we're sharing some important wealth-building advice from our friend Mark Ford… including how to live a rich life for less money, how to start improving your financial situation right away, and how to get a little bit richer every day. Today, he warns about the biggest mistake people make in retirement…
I consider myself to be an expert of sorts on retirement. Not because I've studied the subject, but because I've retired three times.
Yes, I'm a three-time failure at retiring. But I've learned from my mistakes. Today, I'd like to tell you about the worst mistake retirees make.
It's a common mistake… Yet I've never heard it mentioned by retirement experts. Nor have I read a word about it in retirement books…
The biggest mistake retired people make is giving up all their active income.
When I say active income, I mean the money you make through your labor or through a business you own. Passive income refers to the income you get from Social Security, a pension, or a retirement account. You can increase your active income by working more. But the only way you can increase your passive income is by getting higher rates of return on your investments.
When you give up your active income, two bad things happen…
First, your connection to your active income is cut off. With every month that passes, it becomes more difficult to get it back.
Second, your ability to make smart investment decisions drops because of your dependence on passive income.
Retirement is a wonderful idea: Put a portion of your income into an investment account for 40 years and then withdraw from it for the rest of your life. Once you retire, you won't have to work anymore. Instead, you will fill your days with fun activities like traveling, golfing, going to the movies, and visiting the grandkids.
But consider this: A retirement lifestyle for two, like the one I described above, would cost about $100,000 per year.
How big of a retirement account do you need to fund that?
Let's assume that you and your spouse could count on $25,000 a year from Social Security and another $25,000 from a pension plan (two big "ifs").
To earn the $50,000 balance in the safest way possible (from a savings account), you would need about $5 million, because savings accounts only pay 1% at most right now.
But middle-class American couples my age are trying to retire with an account in the $250,000 to $300,000 range. And that's where the trouble begins. To achieve an annual return of $50,000 on $300,000, you would need to make 17% per year.
Getting 17% consistently over, say, 20 years may not be impossible, but it's too risky for my taste.
I retired for the first time when I was 39. I put my money into AAA-rated municipal bonds (very safe at that time), yielding between 5% and 6%. It didn't take long to figure out the math: At those ROIs, I could not maintain the lifestyle I wanted. To get higher returns, I would have to put my money into riskier assets. I had an instinct – correct, I think, in retrospect – that would end badly.
So what did I do? I went back to work.
I went back to earning an active income because I didn't want to spend my days trying to "beat" the market and my evenings worrying about how I was doing. And do you know what happened? The moment I started earning money again, I started to feel better.
Retirement isn't supposed to be a time of worrying about money. But when your income is entirely dependent on the return you're getting on your investments, that is exactly what will happen.
As I write this, millions of Americans my age are quitting their jobs and selling their businesses. They are reading financial magazines and subscribing to investment newsletters. They are hoping to find a stock-selection system that will give them the 20% to 30% returns they need. But they will find out that such systems don't exist. They will have good months and bad years, and they will compensate for those bad years by taking on more risk. The situation will go from bad to worse.
It doesn't have to be this way. Let's go back to the example of the couple with the $300,000 retirement fund and the $100,000-per-year retirement dream. If they each earned only $15,000 in active income and added that to their Social Security and pension, they would need a return of only about 7% on their retirement account, which is more realistic.
I am not saying that you should give up on the idea of retirement. On the contrary, I'm saying that retirement might be more possible than you think.
But you must replace the old, defective idea that retirement means living off passive income only. Paint a new mental picture of what retirement can be: a life free from financial worry that includes lots of travel, fun, and leisure. Funded in part by active income from doing some sort of meaningful work.
The first benefit of including an active income in your retirement planning is that you will be able to generate more money when you need to.
But the other benefit – which is less obvious – is that it will allow you to make wiser investment decisions because you won't be a slave to your investments.
There are dozens – no, hundreds – of ways for a retired person to earn a part-time active income. You can, for example:
•   Earn $50 to $500 per hour working part- or full-time, from home or at the local coffee shop, as a freelance copywriter.
•   Follow a simple money-making formula to begin your own, fully scalable international trading business, acting as a highly commissioned broker by hooking up U.S. buyers with Chinese manufacturers.
•   Make $30 to $100 per hour as a tutor. Or you could put your friends and family to work as tutors and make $500 to $1,000 per hour.
•   Make $50 to $500 per hour running a home-based business that performs routine homeowner services such as lawn care, pool maintenance, tree trimming, or carpet cleaning.
•   Earn $50 to $100 per hour walking dogs and offering your clients other related services such as pet sitting, dog grooming, and obedience training.
Take this advice to heart and you'll avoid the biggest mistake many retirees make.
Mark Ford
Editor's note: As Mark explained in today's essay, it's critical to keep your income streams active. The Palm Beach Letter research team has found more than 30 unique ways to generate safe income streams. Learn about them – and how to get all of their research for just pennies a day – right here.

Source: DailyWealth