Archive for March, 2012

Investment tips from later 1950

It is often said that investors these days are navigation uncharted territory. The world’s largest economies are inundated with massive amounts of debt, the Fed essentially locked in a zero interest rates and a weak outlook for corporate profits to grow.

Many investors are paralyzed in this environment is unlike anything I have not seen them in their adult life. As a result, they are hunkering in cash and a super-safe government bonds. But, as often happens, investors can look back and find potential guide for building a portfolio for today’s markets.

In this case, history suggests that stocks with higher dividend may for a long period of healthy returns. In view of the broad stock market, history also suggests that stocks in general, relative to government bonds, long rates by the Fed, which is contrary to conventional wisdom in the fight against today reduced. But in the longer stocks are a better choice than bonds.

Where can I get the best returns

Where can I get the best returns

For its lessons of history, investors should set your Wayback Machine for the period from the end of 1940. There was a time, do not float in the bond market, interest-free, as is usually done, but the government has closed at a low level, to manage the country, the enormous debt accumulated during World War II.

Economists have a dismal-sounding term for the bond market, where prices are directly or indirectly, is limited to below the inflation rate. This is called “financial repression”.

Today the Fed is engaged in a similar push. This means the purchase of billions of dollars of bonds, an attempt to lower market interest rates to help repair, maintenance of the economy. The Fed said it expected to keep interest rates near zero by 2014.

/>Barry Knapp, head of U.S. portfolio equity strategy at Barclays Capital, studied this period and the period after the Fed’s loose reins in prices in 1951.
Low interest rates

For the postwar period, in which the Fed reduced rates, as is the case today, investors earned a modest harvest. During this time, the Fed keeps rates were north of the 1% level, which was lower than inflation.

It is worth noting, however, that by raising prices, the Fed bond prices also fell. “The performance was about to go under the CAP price anywhere,” says Knapp.

Meanwhile, the share price struggled during this period. Conventional wisdom in the markets these days is to make this move a very low government bond investors from their money into riskier assets like equities. But, says Knapp, “that this is not what happens, go back to the (bond) prices to normal.”

As was the case in 2011, at the end of 1940, stocks usually suffer from lower prices and wage rates, fewer investors willing to pay for future growth in corporate profits rebound. In 1948, government bonds posted returns 1.1 percentage points higher than the twists and turns, when dividends are included, according to Barclays.

The bonds were in most cases better investment than stocks, as long as the U.S. Federal Reserve raised the cap on rates in 1951. Years of flooding reversed bonds and stocks are greater than 25 percentage points, according to Barclays. In addition to the years of recession, this trend out performance in equities in a decade. (It was in 1954, by the way, when the Dow Jones Industrial Average ($ INDU gained 0.15%), including its pre-1929 level.)

The downside of investing in bonds coming back are covered, it was clear when the caps were removed: Growing crops pushed prices of existing bonds.

“Investors can not invest only in bonds and expect a refund in excess of inflation,” says Jason Trennert, chief investment strategist at Strategic research partners of gas.

In early 1951, the real yield of long-term U.S. Treasury bonds – was negative and amounted to 6.5%, depending on the strategy of the gas – which measures the rate of return net of inflation.