Take This One Simple Step NOW to Protect Yourself from the "Fiscal Cliff"
Saturday, December 15, 2012
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Take This One Simple Step NOW to Protect Yourself from the "Fiscal Cliff"

-- By Paul Tracy

Want to know my advice for the "Fiscal Cliff?" My answer might surprise you... (Full Story Below)

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Take This One Simple Step NOW to Protect Yourself from the "Fiscal Cliff"

It's a question I've been getting almost daily from my subscribers: "what does the fiscal cliff mean for stocks, and how can I adjust my portfolio accordingly?"

To be honest, you're not going to like my answer... it's not something most investors want to hear.

Yet what I'm about to tell you has helped investors get through every major economic event of the last decade. It worked in the market downturn of 2002... then again in 2007... and it even worked through the financial crisis of 2008-2009.

In fact, through every major economic event America has ever faced -- including The Great Depression -- this investing strategy has helped investors earn staggering returns over the long term.

Yet despite all of its success, investors are still reluctant to use it. They actually think that by trading in and out of stocks on a regular basis, they're getting some sort of "edge" on the market.

So what's my advice for handling the "fiscal cliff"? Don't do anything... That's right... nothing. Just let the great companies in your portfolio -- the ones that are dominating their markets and paying investors fat dividends -- continue to grow your wealth over the long term.

Each day financial talking heads get on CNBC and Bloomberg and try to convince you that some big economic factor is going to have a profound impact on the stock market.

Last year it was the European debt crisis... a month ago it was the election... and today's it's the "fiscal cliff." Next month they'll be something else to worry about.

Although these events can move the market in the short term, over the long run they simply don't matter.

Think of all the shocks investors have experienced in the past 100 years -- The Great Depression, World Wars I and II, the '87 crash, stagflation, the tech bubble. And these are just some of the major items.

And yet, through all that, investing in great businesses -- dominant companies that pay rising dividends -- has proven to be a winning strategy.

A $1,000 investment in Coca-Cola (NYSE: KO) the day before the '87 crash is worth more than $14,000 today. A $1,000 investment in Becton Dickinson (NYSE: BDX) on the same day is worth more than $10,000 now.

When you own stocks like these, you don't sell them because some one-time event could negatively affect the stock market. People aren't going to stop drinking Coca-Cola because the S&P fell 5%... and they aren't going to stop buying coffee from Starbucks (Nasdaq: SBUX) because of an increase in taxes.

While the financial media frets over the latest impending catastrophe, these companies quietly continue to plow ahead, handing investors outsized returns in the form of both capital gains and dividend increases. Just look at what these ten blue-chips, each of which is practically a household name, has done for investors over the past ten years.

Stock Years Of Consecutive Dividend Increases Current Yield % 10-Year Return
Coca-Cola (NYSE: KO) 50 2.7 66%
Colgate-Palmolive Co. (NYSE: CL) 41 2.3 111%
Target Corp. (NYSE: TGT) 45 2.3 82%
Abbott Laboratories (NYSE: ABT) 38 3.1 59%
Kimberly-Clark Corp. (NYSE: KMB) 40 3.4 73%
Automatic Data (Nasdaq: ADP) 38 3.0 45%
Walgreen Co. (NYSE: WAG) 36 3.0 18%
McDonald's (NYSE: MCD) 36 3.5 370%
Wal-Mart Stores Inc. (NYSE: WMT) 38 2.2 34%
AFLAC Inc. (NYSE: AFL) 30 2.6 72%
AT&T, Inc. (NYSE: T) 28 5.3 20%

As you can see, not only did these companies "shrug-off" every major economic event of the last 10 years (and there were many), they were able to hand investors steady dividend growth as well.

But investing in great companies alone isn't enough. If you really want to increase your returns, you should consider doing what I do and reinvest your dividends. By reinvesting your dividends, you're using your dividend proceeds to buy more shares of stock. As each position in your portfolio grows, so do your dividend checks.

Take a look at the same chart, but this time consider your total return if you had reinvested your dividends.

Stock 10-Year Return 10-Year Return w/Dividend Reinvestment
Coca-Cola (NYSE: KO) 66% 117%
Colgate-Palmolive Co. (NYSE: CL) 111% 163%
Target Corp. (NYSE: TGT) 82% 105%
Abbott Laboratories (NYSE: ABT) 59% 110%
Kimberly-Clark Corp. (NYSE: KMB) 73% 143%
Automatic Data (Nasdaq: ADP) 45% 82%
Walgreen Co. (NYSE: WAG) 18% 34%
McDonald's (NYSE: MCD) 370% 509%
Wal-Mart Stores Inc. (NYSE: WMT) 34% 58%
AFLAC Inc. (NYSE: AFL) 72% 107%
AT&T, Inc. (NYSE: T) 20% 103%

As the chart above shows, you can use dividend reinvestment to dramatically "juice" your returns. In fact, according to a recent report, if you had reinvested your dividends for the past 80 years, your return would be 8 times higher than hadn't reinvested.

So let the talking heads and the financial media worry about whatever they want, but at the end of the day, when it comes to you own money, never forget where the real returns from stocks come from over time... and that's dividends and dividend reinvestment.

[Note: One stock has raised dividends 463% since 2004... another has $9.21 per share in cash (49% of its share price)... another has returned 137% in three years -- more than triple the S&P's 39% gain. These are the type of investments that make up my Top 10 Stocks for 2013 report.

To learn more about these top picks for the coming year, visit this link.]

All the best,

Paul Tracy
StreetAuthority Co-founder, Chief Investment Strategist -- Top 10 Stocks

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Disclosure:  StreetAuthority owns shares of KMB, KO, and T as part of the company's various "real-money" portfolios. Editor Paul Tracy owns shares of MA. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any "real money" model portfolio. Members of our staff are restricted from buying or selling any securities for two weeks after being featured in our advisories or on our website, as monitored by our compliance officer.

Income Notes

Pier 1 (NYSE: PIR), the popular specialty retailer, just announced it was increasing its quarterly dividend 25% to $0.05 a share. Based on today's closing price, after the increase Pier 1 will yield 1.0%.

-- Research Staff

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