When to Invest in Stocks

Stocks or Bonds

People who have invested in stocks have taken out over 27 billion dollars in stock funds. The bond funds have seen investors putting 592 billion dollars towards these investments. Bonds may yet be one of the best ways to invest in the foreseeable future.

The Federal Reserve has kept the rates low believing it will help ignite a better economy. When the federal reserve raises their rates, bonds will go down. In preparation for this, it might be a good idea to move part of your bond investments into stocks that pay dividends.  Stocks are riskier than bonds, but stocks that pay dividends are safer than other types of stocks. The income from dividend paying stocks may be comparable to the yields from bonds.

Dividend paying stocks are a nice alternative in this market because they respond to a market on the rise. They are early indicators of an economy that is about to do better. As the economy improves, these stocks start to slowly raise their payouts.  

Investments in Exchange Traded Funds

In analyzing from the year 2010 numbers, there were more corporations that raised their dividends in the 3rd quarter last year.  Some people invest in ETF’s( exchange traded funds).  ETF’s track a specified index of corporations over a broad selection of sectors.  In this case, you would look for an ETF that have increased their yearly payouts over the last decade.  

If you are staying invested in bonds, avoid high yield and long term maturities. When eventually the federal reserve raises its rates, these bonds will not offer you investment benefits.   Diversification is one of the smartest investment tools you can use.  

Spread your investments across a spectrum of fixed income assets and maturity time.  It will be helpful to you to be invested in emerging market debt investments combined with high yielding bonds. Junk bonds have also been a good investment strategy when you realize their default rate has been significantly lower since the end of 2009. Moody’s investments predicts this rate will even go lower by the second half of 2009.

What Makes a Good Investment for You?

The rules that apply to purchases and sales of bonds are always changing.   Bond prices increase when interest rates drop.  Bond prices go lower when interest rates go up.  While this seems fairly simple, nothing is this simple.

It is not always easy to tell which direction the interest rates are headed. Some indicators show that long term rates of interest may be going higher. The general consensus is taht the Federal Reserve will increase short term interest rates over several small phases this year. Should this occur, bond prices will decrease as a reaction of moving the opposite direction of the interest rates. Some people buy bonds and hold onto them for the long term.

If you are one of those long term purchasers should you buy more long term bonds at this time?  Should you buy now because the treasury yield is a decent 4.56%, or should you be wary of a long term commitment with the bonds?  There are experts that would argue on both sides of this decision.  The majority of experts are saying that interest rates will be on the rise slowly in the near future. Investing in long maturing bonds, therefore, may not be the best investment at this time.

Develop an Investment Philosophy that Fits You

As the economy begins to improve, high grade corporate bonds may be worth researching. Municipal bonds are also a nice alternative to consider as the economic climate improves. If the economy grows even modestly, stock market investing will also start to look more attractive.

Strong corporations who have a long and good standing record of paying dividends may be a good early investment. When you look at the history of the stock market, equity investing had been the best choice in virtually every ten year time period, in recent history. Although, the caveat is always, history is no guarantee of future results.

While we consider the many choices, it is wise to keep in mind that any investment portfolio is best to include a mixture of bonds and stocks. There a many variables that you include your risk tolerance. The older you are, the less concern you need to have long term results. Younger people who invest currently have the time to adjust their investment mix and learn a philosophy that fits them.

More by this Author


Comments 13 comments

Mandrake_1975 profile image

Mandrake_1975 5 years ago from Pennsylvania

I'll never touch corporate bonds in this economy.

I had bonds with Lehman Brothers and I sold them in the summer of 2008 because the various financial news sources that I listen to alerted me to do so (and I'm glad I did). As far as ETFs go, I like 'em.


toknowinfo profile image

toknowinfo 5 years ago Author

Hi Mandrake, That was really smart on your part to have sold the bonds when you did. It is a rough economy out there and everyone has to be on their toes. Thanks for commenting.


psychicdog.net profile image

psychicdog.net 5 years ago

I don't know how predictable the stock market is in the shorterm - as you have rightly pointed out tki, the caveat is history doesn't necessarily repeat but the market goes up in the longterm. In Australia investors tend to swing between stocks and property every five years - the housing sector drives a lot of economic recovery here - I think it is one of the best indicators because spending increases when housing is affordable - just my two bobs worth.


toknowinfo profile image

toknowinfo 5 years ago Author

Hi Pdog, Your observation is very astute. The problem, at least in the U.S. is everything is boom and bust. Very often there is no obvious reason the stock market goes up. And with people selling short, and buying puts and options, it sometimes seems like a free for all. You have to be careful about financial advisors too, because they make their commissions when you sell and buy, and sometimes are given incentives to get people into investments more for their own gain, than what is good for the investor. There are lots of caveats to investing, but the more you know, the better off you are.


b. Malin profile image

b. Malin 5 years ago

What a Wonderful Hub Toknowinfo...The usual Rich and Informative read. Thanks so much for sharing this information...very timely.


toknowinfo profile image

toknowinfo 5 years ago Author

Hi B, thanks for stopping by and sharing your comments. I am glad to know you found this info helpful. All the best to you.


Cogerson profile image

Cogerson 5 years ago from Virginia

Great hub.....the old saying buy low sell high is almost a perfect saying for now.....some of the blue chips stocks out there are just getting back to some of their previous low marks before the recession hit and took them down even further......some like GE will get back to the 30 to 40 dollar shares in the future...voted up


toknowinfo profile image

toknowinfo 5 years ago Author

Hi Cog, Thanks for adding your smarts to this hub. It is very interesting what you had to say. For now, I think we have a long way back for the blue chips and other stocks.


chamilj profile image

chamilj 5 years ago from Sri Lanka

Great hub that worth reading for investors. Thanks for the information.


H P Roychoudhury profile image

H P Roychoudhury 5 years ago from Guwahati, India

Great hub but control investment is good for future safety.


toknowinfo profile image

toknowinfo 5 years ago Author

Hi Chamilj, Thanks for stopping by and commenting.


toknowinfo profile image

toknowinfo 5 years ago Author

Hi H P, Thanks for adding your comments. What you say has great value. On a different note, my hub about Totem Poles was nominated for the Top of the Class Contest. If you like my hub about Totem Poles and would be so kind to vote, I would be very appreciative. http://hubpages.com/hub/HubPages-Top-of-the-Class-...


stock tips 5 years ago

I positively venerate celebration of a mass your blog posts, a accumulation of essay is smashing.This blog as common was educational, we have had to bookmark your site as well as allow to your feed in ifeed. Your thesis looks lovely.Thanks for sharing.

Regards

stock tips

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.


    Click to Rate This Article
    working