Protect Your Wealth From Another Recession

The last 10 years has totally changed the way employees feel about their future. Less secure in their jobs, less comfortable with the prospects of Social Security, and less confident in the stock market's potential to create wealth, investors should have changed the way they invest.

Unfortunately, they haven't. While it's not too late to reshape your path toward a rewarding retirement, you've got to make some drastic changes, and you've got to make them now.

You've lost faith
I don't blame you for losing faith in, well, just about everything. The last decade has been flat in the market, our financial system almost imploded, and federal liabilities are at an all-time high. No wonder our confidence is so low. Check out some of these recently released statistics from the Retirement Confidence Survey:

  • 70% of workers are not confident that Social Security will continue to pay benefits equivalent or higher than what retirees receive today.
  • 65% of workers feel the same way about Medicare's ability to provide for them in the future.
  • 25% of workers think that the age they will retire has increased in the past year.

The most shocking figure is that 25% of working Americans have had to mentally adjust their retirement age in the past year. The worst part of this statistic is that in 2008, only two years ago, that figure was only 14%.

The bottom line: The past two years has almost doubled the number of people who feel their age of retirement will increase.

Reading between the lines
The financial collapse of 2008 and the threat of a double-dip recession have caused millions of Americans to fine-tune the age they think they'll retire.

And 12% of people who have adjusted their retirement age attribute it to losses they've incurred in the stock market, while 5% of people are just so uncertain about the stock market that they're unable to stick to their current retirement plan.

What this tells me is that investors didn't have adequate investment strategies that could successfully deal with an extreme recession, and now that they've been burned, many are too scared to jump back in. Unfortunately, that's the worst conclusion a person can arrive at. What investors need to do is get back in the market, as Treasuries and savings accounts will never provide the wealth that an individual stock can. On the other hand, they need to purchase stocks that make sense given their current attitude toward the market, yet still have all the money-making potential that we've come to expect from buying equities.

To help you jump back in the market and regain the confidence that has been shaken over the past two years, I've found five stocks that I think will fit the bill. They are all dividend stocks -- this is important as dividend stocks not only provide you with current income, but also have a proven track record of outperforming non-dividend-paying stocks. In addition, these stocks have all grown their dividends over the past five years, which was no easy task considering the rough few years we've had. Lastly, I looked for stocks with low betas, which ensures that volatility will be low and you won't see outrageous swings in the prices of your stocks. Here is a list of the five I felt would perform well whether we're in a booming market or a recession:

Company

Industry

Dividend Yield

5-Year Dividend Growth

5-Year Beta

Annaly Capital (NYSE: NLY  )

Diversified REIT

15.6%

8.9%

0.4

Copano Energy (Nasdaq: CPNO  )

Oil & gas pipelines

8.4%

33.9%

0.9

Kinder Morgan Energy (NYSE: KMP  )

Oil & gas pipelines

6.4%

7.2%

0.3

Reynolds American (NYSE: RAI  )

Consumer goods

6.4%

13.4%

0.6

Exelon (NYSE: EXC  )

Utility provider

5.1%

6.9%

0.6

Source: Capital IQ, a division of Standard & Poor's.

Not only do these companies have great track records of success in the market and consistency paying out fat dividends, but they're all incredibly recessionary-proof. The oil and gas pipeline providers typically operate with long-term contracts that are based on volume of natural gas, not price, so they are not terribly vulnerable to commodity swings. Kinder Morgan has often been thought of as the darling of the energy MLPs; however, if you're looking for a newer company with more acquisition exposure, check out Linn Energy (Nasdaq: LINE  ) . Reynolds American sells cigarettes, and that is one product that has illustrated its staying power as well as any. Its major competitor, Altria Group (NYSE: MO  ) , also pays a sweet 6.2% dividend and has an overall lock-down on the market with its more-than-favorable brand supremacy.

Rest easy with this strategy
There's no doubt that investors have been fearful to jump back into the market, and now that the recovery seems to be stalling, it's almost natural to want to recede into the background. But in order to keep that retirement age steady, you've got to increase your wealth, and savings accounts or bond funds just aren't going to cut it.

Invest in stocks -- particularly, dividend-paying stocks -- and choose companies that have low volatility. This way you'll be able to sleep well at night knowing your invested the market, but you're doing it in the safest, most practical way possible. Don't waste any more time losing confidence. Start your new investment strategy today.

Do you disagree with the five companies I've listed above? Don't think they're a good place to start for someone fearful of the market? Let me hear it in the comments below!

Jordan DiPietro owns shares of Exelon, which is a Motley Fool Inside Value choice. The Fool owns shares of Altria Group, Exelon, and Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (14) | Recommend This Article (97)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 19, 2010, at 5:41 PM, TMFTypeoh wrote:

    TMF really seems to be obsessed with NLY......i feel like every day i read 3 articles that mention the company.

    If interest rates rise, which may take 2 years IMO, won't think company be hurt, and badly?

    I'm not a gold bug at all, but i do think inflation could come back big time, which would hopefully mean interest rates rises. NLY dividend is awfully enticing, but im not interested.....

  • Report this Comment On August 19, 2010, at 8:36 PM, RegLeCrisp wrote:

    NLY is a tightrope act and there's no doubt a stiff breeze could make stockholders cover their mouths and gasp out loud. If you buy this stock simply because you are chasing yield you have made a mistake. If you buy this stock because you are chasing yield AND you have investigated management, then you've probably done the right thing.

  • Report this Comment On August 19, 2010, at 9:02 PM, xetn wrote:

    Just to set the record straight, China is dumping US debt. That means that unless some other sucker picks up the slack, the Fed will have no choice than to monetize (purchase) the debt. I believe they are already doing so. This will ultimately lead to a hyperinflation of the US dollar and its purchasing power will plummet. Whether we become the next Weimar Republic or Zimbabwe is unclear. But it could happen very quickly. (It only took some 2 years for Weimar).

    With a worthless dollar, just how do you suppose most Americans afford to EVER retire? The only thing the props up the "value" of any currency is the belief of the users. How else can you place value on a piece of paper with green ink and a picture of a dead president? Well, the fact is, that since the Fed was created in 1913, the dollar has lost over 95% of its purchasing power, so it is approaching its intrinsic value.

    If other forms of money were available for general use, what would happen to the dollar? For a guess, Indonesia has allowed at least on area to use gold and silver coins for all transactions along side of its paper. Which do you think is preferred?

  • Report this Comment On August 19, 2010, at 9:05 PM, TMFMMTInvestor wrote:

    "but they're all incredibly recessionary-proof"

    I think that should read "recession-proof."

  • Report this Comment On August 20, 2010, at 12:40 AM, BearishKW wrote:

    @xetn

    What is your obsession with America turning into Zimbabwe??? I noticed you've posted comments on multiple articles about how America is doomed, we're all going to lose our jobs and the US dollar will be monopoly money. Shorting the market much xetn? Or do you just enjoy throwing gasoline on the fire?

    All fools should beware of blowhards and charlatans who obviously have some kind of agenda. America is not Zimbabwe. We have a stable democracy and an experienced Fed...backed up by thousands of acres of agriculture, oil and minerals, and the richest business environment in the world. People are still risking their lives to enter this country illegally for just a taste of opportunity.

    Step outside the box for just one minute, and enjoy the irony alone of people who log onto the internet and post on financial web-sites about how we are going to hell in a hand-basket. If that was really the truth, if we were really going to be Zimbabwe in two years...you wouldn't be on the internet, typing about it while eating a twinkie.

    You would be storming boarded up banks (but they're not boarded up).

    You would be on the streets rioting (but you cant because there is order).

    You would be stockpiling food (no need, there is plenty of food).

    You would be arming yourselves with weapons and ammo (okay, you have me there).

  • Report this Comment On August 20, 2010, at 9:11 AM, Melaschasm wrote:

    I would replace on of the oil/gas pipelines with MCD for greater diversification.

    For those worried about NLY, WMT seems like a safe replacement dividend stock or if you want to stay in the financial sector IBKC could be a good option, although the yield is much smaller.

  • Report this Comment On August 20, 2010, at 9:11 AM, fug57fug wrote:

    I would have to question the accuracy of this survey. How could the US have an almost zero savings rate for decades, housing devaluation and stock market correction yet only 12% of us feel the need to adjust our retirement plans?

    Seems likely that this number is grossly understated. More likely that many do not pay enough attention to their financial positions or are just wildly optimistic.

    There just aren't enough municipal or union pensions out there to validate this figure.

  • Report this Comment On August 20, 2010, at 9:40 AM, pondee619 wrote:

    "25% of workers think that the age they will retire has increased in the past year." Increased from what age? How many of that 25% felt that they could retire at the age of 50, or younger? Of those who felt that their age of retirement has increased, what was their original estimate? Too many people had an unrealistic sense of their work life times.

  • Report this Comment On August 20, 2010, at 9:48 AM, pondee619 wrote:

    "check out Linn Energy " If you are looking for a stock that could lose you money?

    "These Stocks Could Lose Your Money

    By Michael Olsen (TMFAgewone) | More Articles

    August 17, 2010 " "But MLPs -- particularly the most undercapitalized -- aren't so fortunate. In tough times, they may have no choice but to issue debt, or shares, at sometimes prohibitively expensive rates. It's that, or sometimes risk failing altogether. Don't believe me? Take a look at these share offerings, in the depths of the credit crisis...

    Linn Energy (Nasdaq: LINE) 5/13/09 $16.25"

  • Report this Comment On August 22, 2010, at 7:13 PM, fw190a8 wrote:

    I can't really agree with the title of this article, "Protect your wealth...."

    I own two of the mentioned stocks and bought them because of their yields. I need the yields to supplement my income which has taken a hit.

    But as one of the commentators noted Linn was around $16.00 or so.

    So if you can watch your stock go down 40-50%

    and yield go up (I hope) then these stocks may get you through the tough times...it's the staying in there part thats tough.

  • Report this Comment On August 23, 2010, at 12:12 PM, pondee619 wrote:

    Never really did think I would get an answer to my question from a fool writer. They throw out stats: "25% of workers think that the age they will retire has increased in the past year."; and then fail to clarify it when asked. As such they are useless.

  • Report this Comment On August 25, 2010, at 12:11 AM, Latinus wrote:

    The Weimar Republic was the successor of the German Empire, which had lost World War I.

    The German inflation of 1923 rendered cash and bonds worthless, but what happened to common stocks in German companies?

  • Report this Comment On September 11, 2010, at 3:39 AM, MFreader001 wrote:

    Dear Sir Motley,

    Do you really believe in the things you are talking to the population, or you are just telling this in order to manipulate the market in one or another direction?!

    Actually the question is - how can one take measures against recession by buying stocks in companies which most probably will melt down during the said recession?!

    Regards

  • Report this Comment On October 18, 2010, at 2:51 AM, S2000magician wrote:

    The author suggests that investors ". . . choose companies that have low volatility." Alas, none of the suggested stocks meets this criterion.

    Over the last five years, the annualized volatility of monthly returns for these five stocks and the S&P 500 have been:

    NLY: 28.0%

    CPNO: 46.9%

    KMP: 18.7%

    RAI: 25.7%

    EXC: 20.6%

    S&P 500: 17.6%

    Thus, every one of these stocks has had higher volatility than the market. They may be good stocks, and they may help create a good, low-volatility portfolio, but not one of them is a low-volatility stock.

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