So just checking on the list above -- not one of those stocks would have made the cut for "investing 102" because every one of them has a lousy 5 year chart and not one of them is "best of breed".
This is where a little bit of work has to come into your choices...
I said over and over in this thread that you need to have EVERYTHING going your way or keep looking for another choice. Good/Great chart... Best of Breed... and to diversify.
The only one on this list that I'd consider to be perhaps best of breed is Home Depot (HD).
Personally I use the long term chart to also look for stocks that have INCREASING dividend payouts. Which I have mentioned before... because of the inflation protection this gives you.
NOW -- On to BONDS:
The only way to make capital gains in BONDS is to be a trader. Bonds carry a very undeniable link of price to coupon rate. Yes you can get capital appreciation in bonds but then you're selling your higher interest paying bonds and instead of getting the higher interest for the term of the bond - you've traded that for capital gains. Short term or long term depends on the holding period but you're for certain trading your tax free (in the case of muni bonds) income for a TAXABLE event by trading them.
Bonds are by no means - these days - any less risky than stocks... and one of the oldest sayings in investing is "when interest rates rise - stocks will die - when interest rates die stocks will fly".
Here's the reason for that. Why would you buy stocks if you could get an 8 or 9 or 10% tax free muni bond? That's a fantastic tax free return. So money moves out of stocks and into the relative safe tax haven of bonds (munis). But the reverse is true in a low interest rate environment such as we're in right now. Nobody really wants to make a lousy 3% on their bonds when they can get nearly double that on a dividend stock such as AT&T... so the money moves from the bond market into the stock market.
Here's the catch.... WE are never going to get the timing of these moves right. WE will most likely always be behind the curve. In stocks in a rising interest rate market and the reverse. This is why BALANCE is so critical. I own muni bonds -- about 30% of my investable assets... it's "safe" money - and I don't add to my taxable income. BUT most smaller investors are falling behind big time trying to work this strategy and you'll lose money trying to be in the right place at the right time.
SO let's examine the dividend vs bond income stream argument in a most basic way.
The dividends - should you be invested in the kinds of companies we've said we should be in - should not only be safe - but they can and do rise over time regardless of the daily stock price. Just look at your stocks and go to the 5 and 10 year chart and see what the dividend was "back then" and see if in fact it hasn't doubled or at the very least gone up over time. If we're doing this RIGHT - the dividend should be steady as a rock and rising - and the chart should be climbing as a price per share. If the dividend is outsized (as a percentage) then some of the charts won't be climbing but they'll be our steady eddies (remember that balance and there's usually trade offs).
I actually worry much more about the DECLINE in capital in my BOND portfolio than I do about my stock portfolio. If we are truly in a real recovery -- and the Fed decides to pop the rate -- you'll see a big haircut in capital value. The good news (and the reason to own 'em) is that if you hold to the maturity date of the bond - you get 100% of your capital back. The bad news is - you aren't growing your capital.
I hope this isn't confusing.... it's just that all this stuff is interrelated... and it's really good to understand it -- but it can be detrimental to try to "figure it all out". If you have big dough invested -- you should have more "interest" in trying to stay abreast of this -- but if you're under half a million or so... I'd just pick a course and stick to it. Don't try to be micro managing == but do keep an eye on the MACRO (large) picture.
Since I'm flying - I'm going to post this without a proof read so hope it makes sense.
BTW -- Not all bonds are "safe" -- a couple of major California cities have filed for bankruptcy... one just recently! Guess what - as a bond holder - that's pretty much a wipeout.
Brian Hobaugh SCCA National Tour June 2014
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