What do you do now?
There's something ironic about market pullbacks: People fear them without remembering what a gift they usually end up being. Last summer's dip gave investors a chance to earn a 25% return in a matter of months as stocks surged off the lows. Same thing the year before. Even the crash of 2008 was a blessing if you kept your wits together. Not only were all losses erased in four years, but those who bought low enjoyed one of the best three-year rallies in history. That's what we're scared of?
Blind optimism is dangerous, but let's keep a healthy appreciation for reality, folks: Slowdowns don't always herald a second coming of the Great Depression, and the majority of stock pullbacks leave investors kicking themselves in hindsight, asking why they weren't brave enough to buy.
The S&P 500 now trades at around 12 times earnings, or an earnings yield of 8%. Ten-year Treasuries, meanwhile, yield 1.5%. Ask yourself if these figures seem reasonable, and then think about how you're investing.
Does it make sense? Maybe it does. But if you're light on the stock side, I can think of a few large-cap dividend stocks that deserve your attention after the pullback.
Johnson & Johnson
Or look at Paychex
If you're not into individual stocks, check out a broad-based dividend ETF like Vanguard's Dividend Appreciation
Maybe stocks are about to suffer a big letdown. It could happen. There will probably be four or five recessions in the next two decades -- all will send stocks plummeting. That's how it works. That's how it's always worked. But the key to successful investing isn't necessarily predicting what's going to happen next; no one can do that consistently. It's about taking advantage of what's in front of you today, and having the fortitude to endure whatever happens tomorrow. Anyone contemplating cashing out, hiding on the sidelines, or "waiting for things to get better" is doing almost the exact opposite.
"The market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over," wrote Warren Buffett in October 2008. He was right then. Is a similar sentiment right today? No one knows for sure, but it's usually a good bet. Take advantage of it.
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Fool contributor Morgan Housel owns shares of Johnson & Johnson, Paychex, and Vanguard's Dividend Appreciation fund. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Pfizer, Paychex, and Johnson & Johnson. Motley Fool newsletter services have also recommended creating a write covered straddle position in Paychex and a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy.
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