If you flip to the front of the New Testament — to the Gospel of Matthew — you’ll find the Parable of the Talents. It’s a famous bible story, recounted by Jesus Himself, which relates the value of investing…and the risk of not doing so.
In short, the servant who kept his master’s wealth in cash (gold talents buried underground) got a whipping.
Jesus was certainly onto something here. Over the 101 years since the US Federal Reserve came into being, anyone who dared to keep their wealth in US dollars has lost around 96% of their purchasing power. And as the value of cash in the world’s most powerful economy crumbles, so too does that of the Aussie dollar…as the Reserve Bank of Australia (RBA), like all the developed world’s central banks, seeks to inflate our way out of economic trouble.
This is where so many investors get things twisted. They think doing ‘nothing’ is a smart bet after the markets have had a rough trot. ‘A bird in the hand is worth two in the bush,’ they might think.
But just as the Biblical servant discovered when he copped both barrels from his master, deciding that you’ll do ‘nothing’ as an investment strategy isn’t just dangerous to your health…it’s downright impossible.
Doing nothing is not an option. If you have wealth, it has to take some form. You’re ‘long’ that form of wealth, and you’re neutral or ‘short’ in others. So if you say you’re in cash, ‘doing nothing’, you’re mistaken. You have your wealth in the form of cash.
With cash in your bank account, you might think the bird’s in your hand…but it’s a dangerous illusion that can badly sap your wealth.
Discount the shallow guff
There are times when being in cash is not a bad thing. When all asset classes are overpriced, cash can be a smart place to put your money. But that’s not the story of 2015.
The real story — the one that’s been playing out for several years — is of central banks conspiring to push interest rates lower…and lower…and lower. You can discount the shallow guff you might see in the mainstream press that suggests interest rates ‘have to’ rise. The grinding trend toward lower rates shows no sign of slowing.
That means if you’re looking for an income stream in retirement, you won’t find it in a bank deposit. Nor will you find it in gold, artwork or diamonds. These assets follow their own logic. They neither produce income nor attract tax breaks.
Bonds are an option…but the value of the income stream is less predictable than you might think. It depends on interest rates, inflation, and the bond market itself.
Real estate is an option, too — one that many Aussies have embraced. But it means paying close attention and tying up serious wealth in a way that can be hard to reverse. It’s a business as well as an investment…and most people don’t have the time, the capital or the competence to steer a real estate portfolio.
So where does that leave us?
Six stocks fit the bill
Your editor views dividend stocks as the best income-generating assets in this market.
You know as well as anyone that low interest rates have starved investors of income. That’s driven the exodus from cash to ‘yield stocks’ like the big four banks and Telstra Corporation Ltd [ASX:TLS]. But there’s so much more than this to income investment.
The potential for the RBA to cut rates again in the next few months will convince even more investors to buy stocks that have paid, may pay, or offer the potential to raise a dividend. If you get ahead of the game and add these stocks to your portfolio now, you should be sitting pretty as the cheques start rolling in.
That’s the backdrop to what could be the most important investment advisory we’ve ever launched. Our Income Specialist, Matt Hibbard, went live last weekend with his brand-new advisory service, Total Income.
Matt’s goal is to find stocks and other income-producing assets that will grow and compound in the years ahead. Matt has spent decades proving his credentials in this arena — and he has already selected six stocks that he says fit the bill for investors looking for long term steady income.
Editor, Australian Small-Cap Investigator