Since 1990, China’s economic engine has been an impressive machine.
Since 2010, however, it seems to have blown a cylinder.
While a 6.6% growth rate is something most countries would kill for, China’s growth has been declining year after year.
So what’s happening?
In short, the “Middle Kingdom” (Mandarin translation for the country’s name) is shifting from developing to developed. Meteoric growth is common in poor countries where labor is cheap and plentiful.
That’s how China used to be. But its economy is a fundamentally different animal now…
China has a burgeoning middle class that’s larger than America’s entire population. It’s outsourcing its cheap labor to Africa, India and Southeast Asia.
China isn’t collapsing. It’s joining the developed world in size and stature – even if it hasn’t in human rights or liberty.
Chinese firms are building new roads, railroads, ports and factories. Chinese companies then use those new developments to export their labor. In effect, China is doing to Africa, Eastern Europe and Southeast Asia what America and Europe did to China.
Other industries, including e-commerce, shipping and technology, are also expanding. China will look less like the world’s sweatshop, and its economy and society will more closely resemble Germany’s or the U.S.’s. Expect companies like Alibaba (NYSE: BABA) and Estun Automation to become leaders in their respective industries.
While America will likely remain the No. 1 global superpower, Chinese businesses will become as stable an investment as their American counterparts, albeit with less explosive – but still steady – growth rates.
Moving forward, it’s likely Chinese tastes will dictate global consumption, much like American tastes did throughout the 20th century.
It’s a brave new world out there and – as always – there’s a chance to profit from it.
James …read more
What if I told you we may not be too far off from The Six Million Dollar Man? The truth is we aren’t, and you can profit from this cyborg revolution.
Robotics is an exploding industry. It’s expected more than $66 billion will be spent in the robotics sector by 2025. The medical industry in particular will change completely thanks to robotics.
The future is now, and here’s why…
Take bionic prosthetics for example. Imagine robotic limbs that can be controlled with your brain. Well, you don’t have to. That technology is already here…
The most advanced robotic limb known to the public is Defense Advanced Research Projects Agency’s (DARPA) Modular Prosthetic Limb (MPL). It’s currently being tested on a Floridian man, and the arm is completely controlled by his thoughts.
Unfortunately, this technology isn’t cheap. DARPA’s MPL costs more than $120 million. And the most advanced commercially available prosthetic limbs will run you around $20,000…
That’s where tech startup Open Bionics comes in. It’s attempting to bring robotic limbs to the masses. Its 3D-printed hands aren’t nearly as advanced as DARPA’s tech, but they’re affordable and work. Already these limbs have changed lives.
In addition to robotic prosthetics returning lost limbs to amputees, there are also robotic exoskeletons, like the ones made by Ekso Bionics (Nasdaq: EKSO). These technological marvels are being used to help stroke patients walk again.
Ekso’s exoskeleton technology can also be used preventatively, making hard labor jobs safer by increasing the strength and endurance of its wearer.
Robotics stands to revolutionize surgery too…
Surgical robots, like Intuitive Surgical’s (Nasdaq: ISRG) da Vinci Surgical System, are already in use and generating results.
Da Vinci can perform tiny, exact movements better than human hands. It helps surgeons perform minimally invasive, laser-precise procedures, and it cuts down the time needed to train new surgeons.
The surgical robot sector is exploding. Da Vinci is great for general surgery, but more specialized machines are just around the corner.
Robotics is the future of medicine. Already we have machines saving lives and helping amputees regain their freedom.
The future is already here, and there’s a fortune to be made investing in the companies making the world a better place through robotics.
James …read more
Thanks to Elon Musk, most people think battery-powered electric vehicles (BEVs) are the future of transportation. Tesla’s (Nasdaq: TSLA) lithium-ion battery technology is impressive to be sure.
But BEVs haven’t won just yet. They have a serious competitor, and it’s all around us.
Hydrogen fuel cell vehicles (FCVs) refuel as fast as gas-powered cars. They also have greater range than their battery-powered counterparts…
Hyundai’s Nexo can do 380 miles on one tank of hydrogen. That’s about what most modern cars gets on one tank of gas… and it’s 40% farther than the Tesla Model X can go in between charges.
The main issue with FCVs is the price tag. They retail for about $60,000. That’s steep for a car you can drive only in California, the only state with large-scale hydrogen fuel infrastructure.
For comparison, Tesla’s first car, the Roadster, came with a sticker price close to $100,000 in 2008. The Model 3, the first “affordable” Tesla, didn’t roll off the assembly line until 2017. The low-end Model 3 starts at $46,000.
The point is the price of FCVs will go down over time. That always happens with new technologies.
Japan is driving innovation in FCVs. That’s why Honda (NYSE: HMC) and Toyota (NYSE: TM) are the market leaders. Japan sees hydrogen fuel as the future, and Tokyo is leading the way. The city’s government is working on a fleet of hydrogen fuel cell busses and cars for the 2020 Olympics. By 2021, the Japanese government wants to have 160 hydrogen fueling stations across the country.
Japan is throwing its weight behind hydrogen because it isn’t connected to continental Asia’s power grid. In a nutshell, Japan’s location doesn’t lend itself well to battery-powered cars.
While Japan does produce some BEVs domestically – like the Nissan Leaf – the government wants to steer people to FCVs. FCVs aren’t dependent on an intact power grid, so they work better in disasters, particularly in a country prone to earthquakes and tsunamis.
It’s not just the Japanese driving hydrogen fuel cell technology. The Germans are interested as well. They have a nationwide network of hydrogen fueling stations.
Late last year, Germany rolled out fuel cell-powered trains. Mass transit vehicles and long-distance automobiles are fertile ground for fuel cell technology. Germany’s new trains can travel 600 miles on a single tank of hydrogen and run quieter than their diesel counterparts. And while they have a higher sticker price, they’re cheaper to run in the long term.
Elon Musk may think hydrogen fuel cells are “fool” cells. But Toyota, Honda and Mercedes-Benz have plenty of capable engineers who think FCVs are the future.
The battle for the future of transportation is far from over. Fossil fuels are living on borrowed time, but battery power hasn’t claimed the throne just yet.
Look to companies developing hydrogen fuel cell technology, like Honda and Toyota, to rival Tesla for market share and profits in the green transportation industry.
The future of green transit is far from certain, so hedging your bets with the two best replacements for gas-powered cars is the way to make …read more
The stock rally is back. And so is investor optimism.
According to CNN’s Fear & Greed Index, market sentiment has now reached “Greed” levels after several months in the “Extreme Fear” range.
It’s another sign that it’s time to take a serious look at the opportunities that lie in the market today.
Among the strongest stocks to rebound have been technology stocks, which were some of the biggest victims of the recent correction after years of above-average performance.
But that’s no surprise…
High volatility cuts both ways. Stocks with great momentum moving up often have harsher pullbacks on the way down.
That’s why I’m closely monitoring what investment opportunities can be found in the information technology (IT) sector right now.
Take blue chip IT juggernaut International Business Machines (NYSE: IBM) as an example.
Few companies have made as many contributions to the advances of the computer age as IBM – which has been around for more than a century. So it’s no surprise that IBM is at the forefront of the next great technological revolution: artificial intelligence.
Even now, technologies that utilize AI are already churning out profits for IBM.
This past week, IBM released its fourth quarter earnings report, beating analyst estimates on both revenue and earnings…
IBM’s largest revenue source is its technology services and cloud platforms segment, bringing in nearly $9 billion in revenue last quarter. But its second-largest segment – Cognitive Solutions – is certainly one to watch.
This includes its AI-based technologies, like IBM Watson, which apply machine learning to big data analytics.
The application of these technologies is far-reaching and can touch many sectors of the market – from healthcare data management to manufacturing logistics.
Last quarter, IBM’s cognitive solutions segment brought in $5.5 billion in revenue – about 25% of the company’s total sales for the quarter – with positive year-over-year growth.
Historically, the fourth quarter is IBM’s strongest. And earnings get reported in January.
This pattern has led to a unique phenomenon that my colleague Emerging Trends Strategist Matthew Carr identified as a stock’s “Profit Launch Window.”
It’s the cyclical period in a stock’s price history that produces the strongest returns.
Identifying these trends is one of the ways Matthew helps subscribers of his Dynamic Fortunes trading service capture huge, market-beating gains.
As it turns out, shares of IBM just entered their historical Profit Launch Window, as you can see in the chart above…
IBM shares typically perform best between December and March, based on data from the past five years.
This has proven to be a reliable period to capture quick gains on the stock.
So could shares fly higher again? It certainly looks that way.
IBM is already enjoying a broad market rally off the lows reached in December. In fact, while the S&P 500 is up about 5%, shares of IBM are up more than 16%.
As a great blue chip in technology – as well as a smart way to play the booming AI industry – IBM is looking like a fantastic “Buy” right now.
Even its valuation …read more
Artificial intelligence (AI) is the future. While AI hasn’t reached futuristic science fiction levels yet, huge sums of money have flowed into developing these marvelous machines.
Despite hiccups, like Microsoft’s memorable Tay (the millennial AI bot) and Google and Stanford’s bot that cheated to complete its task, these machines could revolutionize, well, everything. And while AI might be gaining traction slowly, research firm Gartner believes it could be worth almost $4 trillion by 2022.
As you’d expect, tech giants, like Google’s parent company, Alphabet (Nasdaq: GOOGL), and IBM (NYSE: IBM) are the biggest names in AI. But there are also some companies you might not expect to see developing it…
John Deere (NYSE: DE) already has autonomous tractors on the market. And that tech will only get better with time.
Its subsidiary Blue River Technology is even more interesting. It’s developing programs that allow robotic tractors to know when and where to spray pesticides. The really cool thing is the machines process visual data and react accordingly, just like humans.
Google’s contributions to AI development are more well-known. DeepMind, a London-based subsidiary of the Silicon Valley giant, has a program called AlphaGo that beat champion Lee Sedol in a five-game match of Go (an ancient Chinese strategy game). The company also has a machine called AlphaZero that can beat the best Go, chess and Shogi (Japanese chess) robots.
DeepMind’s machines can do more than play games. The technology is capable of identifying medical conditions, including diabetic eye disease and macular degeneration, in seconds. And that’s just one example of the many medical uses for AI.
IBM has also captured headlines with its AI development. In 1997, its Deep Blue computer shocked the world when it beat chess champion Garry Kasparov. Watson, the Jeopardy! champion robot, is currently being used to assist doctors with diagnoses.
But these are only the big boys. There are scores of startups developing AI technology…
Argo AI is developing autonomous vehicles.
CrowdStrike is on the cutting edge of cybersecurity AI.
Chinese firm SenseTime is working on facial recognition software.
And that’s just three of them. Our friends at Early Investing are your guides to profiting from the startups building the world of tomorrow. Over the past few years, deregulation of startup investing has given ordinary people, like you and me, the chance to invest in the future.
Few technologies promise to be as revolutionary as AI. While growing pains are inevitable, we’re on the cusp of something amazing. Humans have always been innovators – from first discovering fire to creating the technological miracles of modernity…
But AI stands to outdo all of it. Once it reaches its apex, it could catapult us decades or even centuries into the future.
We’ve never been closer to the future than we are now. The idea of a self-aware machine was pure fiction 20 years ago.
Not so much anymore.
James …read more
Most of us take practical steps to maintain good health.
We promise to eat less sugar, fewer refined carbs, and more leafy greens and antioxidant-filled fruits.
We resist binge-watching that new Netflix series to spend time outside or in the gym.
We try to stop smoking, use alcohol in moderation (or not at all) and put on sunscreen before we head to the beach.
But if you truly want to protect your health, there’s something else you need to do: Turn down the risk in your portfolio.
According to a study in the Journal of the American Medical Association (JAMA), losing a significant percentage of your wealth isn’t just an unfortunate development.
As the chart above shows, it’s as bad for your life expectancy as being broke.
Social scientists have recognized for years that rich people in this country live longer than poor people.
In fact, a study co-authored by two MIT researchers found that the richest 1% of men live 14.6 years longer than the poorest 1% of men. (Among women, the difference is 10.1 years on average.)
There are several reasons for this.
Poor people live in more dangerous neighborhoods. They are less likely to get preventive medical care. And their diets are far less healthful.
Indeed, people on government-subsidized food programs – 56% of the population – have the worst health, including higher risk for obesity, diabetes, inflammation and high cholesterol. (The No. 1 item purchased by food stamp recipients is soda.)
Yet taking a serious hit to your investment portfolio can negate all the advantages of a richer, healthier lifestyle.
According to JAMA, you’re 50% more likely to die within 20 years of losing most of your assets.
That’s about as large a mortality effect as a diagnosis of heart disease. And it holds true even when existing health problems are factored in.
It didn’t even matter if people were affluent before and after the downturn. It was simply that they experienced a significant loss.
(And the grieving that goes with it.)
Moreover, the study found that a full quarter of Americans 51 and older experienced what they called a “negative wealth shock.”
If that number seems high, think back to the Great Recession.
It came on the heels of everyday folks flipping pre-construction condos, buying subprime mortgage securities and trading stocks on margin.
We all know individuals who lost a significant chunk of their retirement savings… or even filed personal bankruptcy.
You don’t want to become one of those statistics. And you don’t have to. There is plenty you can do about it today.
The current bull market is nearly 10 years old. That has bred complacency.
Many folks have more money in stocks than they’d be comfortable with in a secular bear market.
They are buying lower-quality securities, like biotech stocks without significant revenue – that can easily lose half their value after a bad clinical trial – and “junior” mining stocks that don’t produce anything except a steady stream of press releases.
While full-on euphoria is not here yet, in my view, too many folks are trading options, futures and cryptocurrencies. They are buying …read more
The U.S. is facing a very modern crisis: an aging population and a low birth rate. Unlike other developed countries, however, we’re at the ready.
The chart above shows that by 2060, the number of Americans aged 65 and over will be close to 90 million. Nearly half of those will be over 75.
These numbers are nearly three times what they were in 1990.
Baby boomers are the generation of Americans born between 1946 and 1964. Boomers retire at a rate of around 10,000 per day. They represent nearly 23% of the total U.S. population and are driving the growth in the number of senior citizens.
As a result, America’s next technological boom is looking very “gray.”
Because of boomers, the number of hip replacement procedures went from 160,282 in 2000 to 371,605 in 2014 – a 131% increase. As more boomers retire, that number will only grow…
As they age, retiring boomers don’t want to sacrifice the things they love, so they’re funding the development of better, longer-lasting and less invasive joint replacements.
Michigan-based Stryker Corp. (NYSE: SYK) is at the forefront of the joint replacement industry. In 2017, they recorded more than $12 billion in sales.
It’s innovated cutting-edge, new surgical technologies and is in a great position to profit from the boomer retirement wave.
But boomers influence on the graying of our economy doesn’t stop with joint replacements.
Many older people will need additional assistance. Since Americans are having fewer children and families are more spread out, family care may not be an option for many boomers.
You may think that nursing homes and assisted living communities will make up the difference…
But that won’t be the case.
In fact, both are shrinking businesses. In-home care is instead the future of elder care. Companies, like the California-based CareLinx, have created a growing $100 billion industry.
These companies connect people to a network of care providers. They allow for all the care of a nursing home in the comfort of one’s actual home.
Beyond home-care companies, there are a number of startups that cater to the needs of America’s aging population.
Liftware, for example, has developed technologies to stabilize eating utensils for people with limited arm movement or a tremor. It was acquired by Google in 2014 and is now part of the company’s Verily Life Sciences research organization.
And Neurotrack has developed a retina analyzing program that detects damage to the hippocampus – an early sign of Alzheimer’s disease.
The needs of the aging baby boomer generation are fueling the rapid development of technologies dedicated to improving the quality of life for seniors…
Making the increasing longevity of the American population a good bet.
It’s the most wonderful time of year again. The markets may have you feeling otherwise, but this should restore some of your holiday cheer…
The upward trend of holiday retail sales since 2014 continues this year. Experts are expecting this to be the first $1 trillion Christmas. The best part is you can get a slice of that trillion dollars and have a little fun with your investments at the same time.
Last week, I showed you there are some strange ETFs out there. Today, I’m really going to prove it.
I found two more examples that demonstrate there really and truly is an ETF – or its close cousin, the exchange-traded note (ETN) – for everything. In fact, there’s one for you this Christmas whether you’re Buddy the elf or Ebenezer Scrooge.
For those Buddy the elf types (myself included), you’ll probably be baking up a storm this holiday season. In addition to adding a few pounds to your waistline, holiday cookies can also add a few dollars to your bank account. The iPath Series B Bloomberg Sugar Subindex Total Return ETN (NYSE: SGG) invests in sugar futures.
Sugar is one of those commodities that isn’t going anywhere, at least not as long as a certain big man in a red suit needs cookies. As you’re spreading holiday cheer with your baking skills this holiday season, this ETF may make you feel a little less guilty about that third trip to the cookie tin.
And what about those Scrooges among us? If you’re feeling a little “Bah! Humbug!” about the holidays, there’s an ETF for you too.
While retail sales continue to rise, there can be no doubt brick-and-mortar shopping has changed forever thanks to e-commerce.
That’s what the people behind the ProShares Decline of the Retail Store ETF (NYSE: EMTY) are counting on. This is a unique inverse fund. It’s designed to go up as brick-and-mortar stores close down: For every 1% decrease in that index, this ETF will go up by 1%.
The bankruptcy of Toys R Us earlier this year is evidence that traditional retail outlets will have to adapt or die. Even retail giants like Target are feeling the pressure.
Both the iPath Series B Bloomberg Sugar Subindex Total Return ETN and the ProShares Decline of the Retail Store ETF illustrate there are funds for every occasion – and every type of person.
Want to know which ETFs to ask Santa for this year? Start with the picks in Club ETF Strategist Nicholas Vardy’s NEW trading service, Oxford Wealth Accelerator.
Nicholas is the authority on ETF investing, and his proprietary “Money Matrix” momentum tracking system enables him to uncover explosive trends happening anywhere across the world. His service will help you profit from the fastest-moving ETFs in any market, while fast-tracking your wealth accumulation at the same time!
In short, investing in ETFs with Oxford Wealth Accelerator will allow you merry gentlemen (and gentlewomen) to have a restful holiday.
Good investing and happy holidays,
James …read more
Exchange-traded funds (ETFs) are one of the fastest-growing investment opportunities out there today. If current trends continue, they’ll even overtake mutual funds in terms of market share and assets under management.
As of 2017, there were more than 2,000 U.S.-based ETFs and more than 4,000 globally.
In any group that large, there are bound to be a few oddballs. There’s an ETF related to gambling, one dealing with livestock and even a MAGA ETF that invests in companies that back Republicans.
As you can see, ETFs aren’t your dad’s fund investments. They’re more personalized, diverse and flexible than mutual funds.
I’ve found two to illustrate just how niche this market can be.
Would you like an ETF that invests in companies best positioned to benefit from the enormous spending power of millennials? If so, take a look at Global X Millennials Thematic ETF (Nasdaq: MILN).
Millennial investors have been a key part of the takeoff of ETFs. More than 60% of them view ETFs as a necessary part of their portfolios. It only makes sense that they would have an ETF reflecting their unique preferences.
This ETF holds assets in several companies millennials tend to like and patronize: Apple (Nasdaq: AAPL), Netflix (Nasdaq: NFLX), PayPal (Nasdaq: PYPL), Starbucks (Nasdaq: SBUX), The Walt Disney Company (NYSE: DIS), etc.
It’s been performing pretty well, so there’s a chance this millennial might actually move out of his parents’ house sometime soon.
The people behind the Obesity ETF (Nasdaq: SLIM) also found gambling on national stereotypes to be a sound investment strategy. The Obesity ETF plays on the trend of expanding waistlines in the U.S., and it’s paid off. The fund outperformed the S&P 500 by 20% last year.
The Obesity ETF’s major holdings include several health-oriented companies. One is Insulet Corp. (Nasdaq: PODD), which makes insulin pumps and other diabetes supplies. Another is Abiomed (Nasdaq: ABMD), which develops treatments for heart disease. With this ETF, you can invest in cures for diabetes and heart failure, two of the most common ailments in First World countries, including the U.S.
These show there really is an ETF for everyone, no matter how niche your interests. Shop around and I’m certain you’ll find an ETF that suits you.
In fact, you can start with The Oxford Club’s ETF Strategist Nicholas Vardy’s NEW trading service, Oxford Wealth Accelerator. Nicholas is one of the smartest people we know. He’s a seasoned financial analyst and globally sought-after ETF expert with degrees from Stanford University and Harvard Law. He formerly managed more than $1 billion in assets as a portfolio manager in the U.K.
Nicholas is the authority on ETF trading, and his proprietary “Money Matrix” momentum tracking system enables him to uncover explosive trends happening anywhere across the world. His service will help you profit from the fastest-moving ETFs in any market, while fast-tracking your wealth accumulation at the same time!
With ETF investing, there really is something for everyone. So let your financial freak flag fly!
Everything else is personalized these days… why not your investments?
James …read more
Altria Group (NYSE: MO) shares have dropped 25% this year due to disappointing sales growth, regulation, and management changes. As a result, the Altria dividend yield has climbed back towards its 10-year average. Altria now pays about a 6% yield but the important question, is the dividend safe? To answer this, let’s look at the business and dividend trends…
Altria Dividend Supported by a Big Business
Altria Group is a $102 billion business that operates out of Richmond, Virginia. Altria employs 8,300 people and makes about $2.3 million per employee in sales. That works out to $19 billion in total sales.
Altria is a tobacco company that has a credit rating of A- from the S&P. This allows Altria to issue low-interest rate debt to build its business and pay dividends.
One way Altria has recently built its business is by investing $1.8 billion in Cronos Stock. Cronos operates in the medical marijuana space and if the U.S. legalizes marijuana on the federal level, Altria will profit big on marijuana. This potential revenue will help support Altria’s growing dividend payouts.
Altria Dividend History and Trends
Altria paid investors a $1.68 per share dividend a decade ago. And over the last 10 years, the dividend has climbed to $2.54. You can see the increases below…
The compound annual growth is 4.2% over 10 years… but over the last year; Altria’s dividend climbed 8.1%. That’s solid growth for an income investment. Let’s review the yield…
If you’re a dividend investor, you can uncover the power of reinvesting your income with our free dividend calculator.
Altria’s Current Dividend Yield vs. 10-Year Average
Altria’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield an indicator of value. A higher yield is generally better for buyers. Dividend safety is also crucial, and we’ll look at that soon.
The Altria dividend yield comes in at 5.87% and that’s below the 10-year average of 6.66%. The chart below shows the dividend yield over the last 10 years…
The dividend yield has dropped most of the last 10 years but is slowly climbing again. The dividend trend has reversed.
Is the Altria Dividend Safe?
Many investors look at dividend payout ratio to figure out dividend safety. They look at the dividend per share divided by the net income per share. And a payout ratio of 60% would mean that for every $1 Altria earns, it pays investors $0.60.
The dividend payout ratio is a good indicator of dividend safety… but accountants manipulate net income. They adjust for goodwill and other non-cash items. A more useful metric is free cash flow.
Here’s the Altria dividend payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and the trend is up. The last reported year shows a dividend payout ratio of 103.3% and that’s concerning. Altria’s board of directors doesn’t have any room to raise the dividend sustainably.
Although the Altria dividend yield is big, you might want …read more
Much of the investing world has been hypnotized by the vertigo-inducing roller-coaster ride of crazy cryptocurrencies.
But there’s another financial revolution taking place all around you.
And that is the revolution in exchange-traded funds (ETFs).
Since 2000, ETF assets have grown at an average annual rate of 142%. They currently make up 19% of the market.
Last year, the “BlackRock ETF Pulse Survey” found that 52% of U.S. investors intended to invest in ETFs.
9 in 10 financial advisors also expect to invest in ETFs for client portfolios.
Overall, ETF investors are younger, more engaged and more optimistic about their financial futures than the general investor population.
In short, ETF investors are the future…
Six Ways ETFs Trounce Mutual Funds
The ETF industry has the mutual fund business on the run.
And for good reason…
ETFs offer some massive advantages over mutual funds.
In fact, I have to scratch my head wondering why anyone would want to invest in a mutual fund ever again.
Here are six advantages that make ETFs a no-brainer…
1. ETFs have no investment minimums, front-end loads or early redemption fees.
I won’t mince words here…
The front-end loads and early redemption fees that some mutual funds still charge are a retail investor shakedown.
Contrast that with ETFs…
Since ETFs trade like stocks, you can buy as few or as many shares as you want. And you can buy and sell ETFs when you want, without penalty.
With an ETF, you pay only the cost of the stock commission. Leading brokers like Fidelity and Schwab even offer commission-free ETFs.
2. ETFs offer real-time tracking.
Mutual funds price only once each trading day.
In contrast, ETFs price all day long, just like stocks.
That means ETFs reflect more accurately any sharp moves in the value of an underlying portfolio.
3. ETFs offer real-time trading.
Mutual funds are bought and sold only after the market closes. ETFs are bought and sold whenever the markets are open.
ETFs are flexible and efficient. Mutual funds are old and stodgy.
4. ETFs are transparent.
Mutual funds disclose their holdings once per quarter. Meanwhile, ETFs must report their portfolios on a daily basis.
With ETFs, you always know what you’re buying.
5. ETFs are tax efficient.
Mutual funds generate taxable income as part of the regular process of buying and selling shares. That creates taxable capital gains.
In contrast, ETFs exchange underlying securities in kind for ETF shares – a nontaxable event. That means you pay much lower – if any – taxes on ETF gains.
6. ETFs are cheaper than mutual funds.
And here’s my favorite advantage that ETFs have over mutual funds…
The average mutual fund charges a management fee of 1.13%.
In contrast, the average ETF has an expense ratio of 0.44%.
Put another way, the average mutual fund is a whopping 157% more expensive than the average ETF.
How much impact can high fees have on your returns?
Consider this extreme example…
The Rydex S&P 500 Fund Class C (Nasdaq: RYSYX) charges 2.31% per year to track the S&P 500 Index.
In contrast, the Vanguard S&P 500 ETF (NYSE: VOO) – with an identical strategy – charges only 0.04%.
That means the Rydex S&P 500 fund …read more
There are two types of dividend investors out there: yield grabbers and growth groupies. But the most successful dividend income investors I know capture both.
Income-hungry investors aren’t satisfied with receiving a paltry 2% dividend yield.
I don’t blame them! Earning 2% a year doesn’t begin to cover Starbucks’ (Nasdaq: SBUX) 10% price hike on a cup of coffee this year, let alone inflation.
That’s why many investors gravitate toward high-yield dividend stocks. For the sake of this argument, I’ll define high-yield stocks as those with yields greater than 4%.
I call these investors “yield grabbers.” They’re looking to cash a big dividend check right now.
Telecommunication and utility companies, master limited partnerships, and real estate investment trusts often have high yields. They also have slower dividend growth.
These companies and the products or services they provide are often natural monopolies. Some examples of natural monopolies are oil and gas pipelines, telephone lines, and internet connectivity. But often, government regulation or other factors limit profit and dividend growth.
But not all high-yield stocks make good investments. Some of them are downright dangerous.
We call these stocks “yield traps” because the companies are in trouble. They have high debt loads and declining sales, and they cannot afford to keep paying their lofty dividends for long.
Yield trap dividends are unsustainable and make horrible investments. If you invest in these stocks, you’re likely to lose money in two ways. The first is an income hit when the company cuts or eliminates its dividend to preserve cash. The second is a principal hit as the price of the stock continues to fall with the company’s declining business performance.
Yield grabbers must be experts at spotting and steering clear of yield traps if they want to build a lasting dividend income stream.
But avoiding yield traps doesn’t guarantee that yield grabbers will have enough to get by in the future.
While higher income today is great, it’s also important to have much higher income tomorrow. Unfortunately, most high-yielding stocks don’t fit that bill.
Typically, high-yielding stocks have slower distribution growth. They raise their dividends just a few percentage points each year. Some high-yield stocks haven’t raised their dividends in years (if ever).
Yield grabbers usually dismiss low-yielding stocks. They often won’t invest in a dividend stock with a yield below 2.5% or 3%.
It’s understandable in some cases.
Low-yielding stocks don’t generate enough income right now for yield grabbers. If you’re in or near retirement and are depending on dividends to pay your everyday bills, a paltry 1% to 2% yield doesn’t cut it.
But here’s the good thing about some lower-yielding stocks…
As the chart shows, they typically grow their dividends at a much faster pace than their high-yield counterparts. Some lower-yielding stocks even double their dividends every single year! This is especially true of new dividend payers.
That’s why growth groupies love them.
You can blame it on the law of small numbers. If the dividend is small to begin with, even a tiny increase will be a big percentage gain.
Let me show you how it works…
A $0.05 raise on a $0.05 …read more