The heightened market volatility we've experienced over the past few days serves as a reminder to all of us: Massive financial crises like the one we experienced in 2007 take time to heal. The rule of thumb is about a decade. With that in mind, what's going on in this crazy market, and what should investors do to protect and grow their portfolios?

The problem is actually pretty simple. Consumer spending has historically made up about 70% of the U.S. economy. But with consumers suffering from high personal debt and unemployment, they're not spending. The graph below shows just how far we've fallen below the trend line:

  Source: St. Louis Federal Reserve Bank.

When there's no demand for things, businesses cut back, laying off workers, which worsens unemployment and makes it more difficult to pay back personal debt. This is what's happening today: In the monthly National Federation of Independent Business surveys, businesses have consistently rated "poor sales" as the single biggest roadblock to their expansion throughout the current downturn.

Normally in these situations, the Federal Reserve can lower interest rates, or the government can increase spending or cut taxes to spur the economy. But short-term interest rates are already at 0%. Taxes are at a 60-year low as a share of the economy. And whatever your view on taxes, government programs, and deficits, the recent political focus on deficit reduction makes it less likely that policymakers will do much to deal with the struggling economy.

When businesses suffer because of weak spending, less spending -- whether by consumers or government -- worsens that problem. Over the past three quarters of spending cuts, we've seen economic growth grind to a halt in the U.K. And within hours of last week's deal to reduce spending by some $2.5 trillion over the next decade, JPMorgan cut its estimate for GDP growth in anticipation of lower federal spending and the potential expiration of stimulus tax cuts.

With the economy on the rocks and the market going crazy, what can you do to protect -- and grow -- your portfolio?

Dividend-paying stocks are especially attractive in times like these, as they tend to outperform by a significant amount during down markets. With corporations sitting on record cash hoards that they are reluctant to invest, dividend increases become attractive.

As legendary bond investor Bill Gross recently noted, in times like these, "you want the relative certainty of cash flows [from securities] like utilities and high-dividend stocks."

So, what can you do to protect and grow your portfolio in this market? Here are 10 of today's top opportunities.

Utilities and utility-like stocks are popular in slow-growth periods because they provide essential products and services. Low interest rates are especially beneficial for this highly leveraged sector. Electricity provider Southern Company (NYSE: SO) and trash hauler Waste Management (NYSE: WM) produce stable earnings that are relatively sheltered from economic conditions, and they pay dividends of 4.8% and 4.4%, respectively.

Mortgage REITs
When unemployment is high and inflation is low, as is the case today, the Federal Reserve keeps short-term interest rates low. The increase in the spread between short- and long-term interest rates is a boon to mortgage REITs such as Annaly Capital (NYSE: NLY) and Annaly managed Chimera (NYSE: CIM) and Crexus, which make money on the difference. I've purchased shares for the real-money portfolio I co-manage for The Motley Fool because today's unusually high spread allows these companies, which are required to pay out at least 90% of their earnings in dividends, to yield 15%, 16.6%, and 9.5%, respectively. Don't count on those big payouts lasting forever, but they could stick around for another couple of years: The Fed doesn't plan to change its interest rate policy until employment or inflation budges, which won't be "for an extended period."

Income inequality has been growing over the past 30 years, and the trend has been accelerated by the economic downturn. Today, the top 5% take home 40% of the national income and own a whopping 60% of national wealth. While weak demand may be a problem for many companies that serve the middle class, those that cater to the wealthy enjoy a tailwind. Recently formed Pebblebrook Hotel Trust (NYSE: PEB), which is run by industry expert Jon Bortz, is taking advantage of the real estate bust to buy luxury hotels at fire-sale prices. Luxury handbag maker Coach has been firing on all cylinders and pays a small dividend, though the stock may be a little pricey.

International opportunities
Companies that earn a large and growing chunk of their revenues from outside of the U.S. and Europe provide added protection against the economic slowdown in those regions. These three blue-chip dividend payers are the top dogs in their respective industries and have large international exposure:


International Revenue as % of Total Revenue

1-Year International Revenue Growth

Primary International Regions

Dividend Yield

Intel (Nasdaq: INTC) 85% 24% Taiwan, China 3.9%
Philip Morris International (NYSE: PM) 100% 9% Europe, Asia 3.7%
Coca-Cola 68% 5% Pacific, Europe, Latin America 2.8%

Data from Capital IQ, a division of Standard & Poor's.

The bottom line
Today's market produces risks, but it also offers investors plenty of money-making opportunities, like the 10 I identified above. The important thing is to be picky with your stock selection to ensure that you're keeping your portfolio safe and growing.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.