How many people sold their stocks at the 2009 bottom, went to cash and then bought gold at its 2011 peak?
In my latest Index Investing Show podcast episode, I explain how “double whammy” effect has damaged certain investment portfolios so severely, the losses could be catastrophic.
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The solution for investors sitting on big losses from precious metals (NYSEARCA:GLTR) is to rehabilitate and reconstruct their portfolios. For example, using precious metals (NYSEARCA:SLV) as your portfolio’s “margin of safety” money is a fundamental flaw. Why? Because gold (NYSEARCA:GLD), like stocks and bonds, can lose market value. Remember: Insurance coverage should never lose value.
Although U.S. stocks (NYSEARCA:SCHB) are still hanging on to their year-to-date (YTD) gains, dividend yields are still depressed.
The chart below shows how the S&P 500’s (SNP:^GSPC) dividend yield has collapsed 64% since 1981 from 5.57% to a current yield of 1.99%. As a result, many investors have chased higher yielding assets like long-term U.S. Treasuries (NYSEARCA:TLT) and junk bonds (NYSEARCA:HYG) in search of more income. And if they don’t get snake-bitten by rising rates, rising defaults on low rated debt could unexpectedly catch many people completely off guard.
In this same episode, I talk about the covered call income strategy and I provide a real-time update on the August income trade for the ETF Income Mix Portfolio. Since Feb. 2012, this all-ETF portfolio offer to ETFguide’s premium subscribers has averaged monthly income of $842. There is no one single perfect income strategy, but selling covered calls offers a consistent form of cash flow beyond dividends from stocks and income payments from bonds (NYSEARCA:BOND).
One final feature of the podcast is a Portfolio Report Card diagnosis I execute on a $565,000 account for BA in Michigan. BA is a married couple in their 50s that submitted their portfolio for examination because they’re concerned about the performance of their investments. Does their portfolio pass or flunk? Listen to find out.