On March 9, 2009, over 56 months ago, the buying began…and it hasn’t stopped since.
The S&P 500 is up a staggering 170% since the “Devil’s Low” of 666.
But has the market reached a crossroad?
If you think I am going to give you a prediction about what the market is going to do over the short-term, well, you are crazy. It’s anyone’s guess.
However, I am not opposed to taking a look at the intermediate-to-longer-term view of the market and how I plan on investing as a result.
Currently, the market is content as evidenced through the historically low-levels of the VIX. At just under 13, the investor fear gauge is telling us there is complacency among investors. And rightfully so. There appears to be no Fed tapering on the horizon, only the ongoing threat to keep, in my opinion, “irrational exuberance” from occurring.
Bernanke has passed the dovish torch to Yellen, who has expressed her intent to keep injecting stimulus into the economy for the foreseeable future…and the Fed Funds rate looks to remain near zero for even longer.
The fact is the doves, who have the controlling opinion within the Fed, remain skeptical of improved corporate earnings and as a result the continued promise of low interest rates gives validity to steadily rising P/E multiples in stocks. Nevertheless, we always hear about the imminent rise of longer-term interest rates and how we should appropriately position ourselves.
Let’s be real here: Interest rates aren’t rising soon. And when they do begin the cycle upward, it’s going to be quite some time before they reach the historical national average of 6.1%.
So, as investors, particularly income investors, it’s our job to find the best possible opportunities available given what we know.
There is no doubt that investors, particularly income investors, have been unwillingly forced into becoming more speculative. Low interest rates have deterred income investors from money-market accounts, savings accounts…basically any safe-haven income investment that we were accustomed to when interest rates were hovering around historical averages.
But some of us desperately need the income, so we have turned to dividend-paying stocks. And while that has been a winning proposition over the past five years, dividends on the safest stocks only average 2% to 3%, certainly not enough yield for most of us.
That is why I always push investors to learn how to use covered calls. It is truly the answer to investors’ income woes. You can take the safest blue-chip dividend aristocrats and realistically double if not triple the yield each year. I know, it sounds too good to be true…but it’s not. It’s real and the returns are real. More importantly, covered calls (and selling puts for that matter) allow you to bring in steady income no matter which way the market moves.
So I often scoff when people ask me which way I think the market is headed. Or are we at a crossroads?
Most of us here are long-term investors or at least have a large portion of our portfolio dedicated to the endeavor. We want to learn about long-term strategies…that’s why we are here. So why ignore the most consistent, long-term way of collecting income? Covered calls are the answer to increasing your income without taking on any additional risk. In fact, you are lowering your risk by using covered calls.
So please, don’t do yourself a disservice by ignoring covered calls. They are THE most powerful income strategy available to investors today and should be a part of every investors portfolio.
If you would like to learn more about covered calls please do not hesitate to email me at [email protected] or simply watch my latest video, Covered Calls 101.
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