Why Dividend Reinvestment Is a Must.

Here's How Powerful Dividend Reinvestment Is to Your Portfolio

At Money Morning, we're big proponents of dividend reinvestment. It's a strategy that will help you amass tremendous wealth over time.

Our Chief Investment Strategist Keith Fitz-Gerald showed investors just how valuable dividend reinvestment is to your portfolio using a single example and a stunning graphic to illustrate his point.

Here's Fitz-Gerald on the power of dividend reinvestment…

Why Dividend Reinvestment Is a Must

Reinvesting dividends is the practice of buying additional shares of a stock using the dividends themselves to pay for your purchase. It results in long-term compounding, and that's key to building a fortune.

Let's use Altria Group Inc. (NYSE: MO), a high-yield dividend stock, as an example. Last September, Altria boosted its dividend for the 48th time in the last 45 years. Shares yield 4.11%.

While that's fabulous for any investor, some have made out like bandits. Depending on when they originally purchased shares, they've had the chance to receive more in dividends than they originally paid for the stock itself. Which means, practically speaking, they own the stock for "free."

Over time, the difference between simple appreciation and the effects of continual dividend reinvestment is jaw-dropping.

Had in you invested in MO stock on Jan. 2, 1970, and left that money alone until the close of trading on Sept. 2, 2014, your return would be 431,800%, adjusted for dividends and stock splits.

Many companies even offer dividend reinvestment plans (DRIPs) as a means for investors to purchase shares over time. Investors can start with a small number of shares and, instead of receiving dividends as cash, reinvest continually in the company's stock.

This achieves two things. 1) It puts the plan on autopilot, and 2) it helps you maximize the effectiveness of dollar-cost averaging over time. You spread your purchases out and never have to lift a finger to do so.

The DRIP strategy isn't a get-rich-quick tactic. But for investors with an eye toward the long term, its power is unrivaled in transforming modest investments into mega-returns down the road.

http://moneymorning.com/2015/03/27/heres-how-powerful-dividend-reinvestment-is-to-your-portfolio/

Cut Your Problems Down to Size

One of the easiest habits to fall into as a business owner is to group individual problems into big buckets like ‘I can’t get my team on board’. That might be true, but by thinking about it in this way, you've advertently put the problem in a frame that you can’t really work on. Instead, get in the habit of turning those buckets upside down, by pulling apart and dealing with the individual frustrations that are at the root. You'll start seeing opportunities to make small but definitive changes throughout the day, changes that will add up to big results over time.

Here’s a way to ‘un-bucket’ the three most common problems you have so you can work on them a little bit every day (if you think about it, you might only have these three problems).

"People Problems": If you have a pattern of personnel issues, the sensible part of you knows you’re contributing to them because of your blind spots (they’re not called that by accident). You can’t discover and change all of them overnight. But you can start by challenging them in individual relationships. 

-   For example, you can resist the urge to jump in and save someone on your staff who has a tough task to complete and leave them room to grow. 

-  Or you could start a personal conversation with someone on your team that you’ve kept at a distance.

"Money Problems": The easiest way to start turning your money problems around is to find one expense—right now—that you don’t really need. I guarantee there are 10 of them, but you can’t—and shouldn’t—cancel all 10 at once. Cancel one. Prove to yourself that you don’t need it. Next week, cancel another. Imagine how much money you’ll be saving 10 weeks from now.

"There’s Not Enough Time": The problem isn’t too little time. It’s that you have too many ideas—which results in a lack of head space to execute on the right ones. The unchecked entrepreneur in you is more comfortable coming up with a new idea than confronting a current issue. Delete one project (and I mean delete it from your task list—including all the emails, notes, etc.). Make an announcement telling everyone on the team to do the same. Imagine what it would feel like if everyone in your business was working on one, and only one, goal right now.

You’ll quickly discover how liberating it can be to do just one of these each week. Your team will be grateful, your profitability will improve, and you’ll drive home feeling like you got something done each day. After a few weeks like that, you’ll be hooked.

Jonathan Raymond   April 22, 2015

http://blog.emyth.com/cut-your-problems-down-to-size

Positive Power of Negative Thinking

Positive Power of Negative Thinking: Great Leaders Build Great Businesses on the Realities of Negative Thinking…

Negative thinking (fear, doubt, worry…) is a fact of life and of business… You can’t stop negative thinking from entering the workplace, but you can stop it from limiting you and your team… The positive power of negative thinking is a check to the natural, irrational exuberance we feel when we try to attain success. Also, by thinking about the negative events, if and when they occur, the bitter taste of their impact will be lessened thanks to planning… According to Michelle Kerrigan; negative thinking is a catalyst in the change process… managing change means managing negative thinking– including your own. True transformation works best when it is driven by emotion and by support, and by believing everything will be OK, after you worry that it won’t… According to Seth Godin; positive thinking and confidence improves performance… whereas, negative thinking feels realistic, protects us, lowers expectations… In many ways, negative thinking is a lot more fun than positive thinking– so we do it… Positive thinking is hard, but worth it… According to J. D. Fencer; positive thinking– it doesn’t guarantee success, but lack of it guarantees failure… But, the facts remain– a healthy dose of both positive and negative thinking are required for a successful business, organization


http://bizshifts-trends.com/2014/04/23/positive-power-negative-thinking-power-great-leaders-build-great-businesses-reality-negative-outcomes/

Could Negative Interest Rates Arrive In America? The Collapse Of Cash

Could Negative Interest Rates Arrive In America?

They already have. Beginning on May 1st, JP Morgan Chase has announced they will charge certain customers a “balance sheet utilization fee” of 1% a year on deposits in excess of the money they need for operations. That amounts to a negative interest rate on deposits. Banks formerly competed for your money--now they want to charge you to park it with them.  

With interest on deposits at next to nothing, or now slightly negative, the only reason for consumers to keep money in the bank is convenience. The more money you lose money on your deposits in the form of a “utilization fee”, the more attractive your mattress becomes. But, as long as paper money and your mattress are available, the Fed will not be able to fully implement its negative rate policy in its quest to create inflation. After all, there would be a global run on the banking system if rates were to fall into negative territory by more than just a few percentage points.

So how can central banks and governments ensure rapid money supply growth and velocity if consumers have the option to hoard cash? Some of the “best minds” in Keynesian thought, like Kenneth Rogoff, have a solution to this. They are floating the idea that paper money should be made illegal and the evidence shows governments are listening. If you outlaw hard cash, and make all money digital, there is no limit to how much borrowers can get paid to borrow and how much savers get charged to save. This would make it unprofitable to hoard cash, and compel people to consume and borrow electronic currency as fast as possible. Money in the bank would become the “hot potato”: as soon as it hits your bank account the race would be on to move it to the next person’s account.  Whoever gets stuck with the money when the music ends pays a fee; that would be some increase in velocity!  And vastly negative real interest rates would force the amount of leverage in the economy to explode.

This idea sounds fairly Orwellian–allowing central banks to control every aspect of monetary exchange and giving the Federal Government an electronic gateway to every financial transaction. But when you think about it, the idea of a fiat currency and the Federal Reserve were radical ideas before they became common place. Indeed, this is exactly why the authors of our constitution tried to ensure gold and silver would have the final and only say in the supply and value of money.

Just as gold once stood in the way of governments' desire to expand the money supply, physical cash is now deemed as a fetter to the complete control of savings and wealth by the state. History is replete with examples of just how far governments will go to usurp control of people under the guise of the greater good. Sadly, the future will bring the collapse of cash through its illicit status, which will in turn assist in the collapse of the purchasing power of the middle class. Wise investors would take advantage of the opportunity to park their savings in real money (physical gold and silver) while they still have a chance.  

http://www.talkmarkets.com/content/us-markets/the-collapse-of-cash?post=64180


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We are in our seventh year of record-low interest rates and banks have been flooded with reserves. However, the developed world appears to be debt disabled. That is, already saturated in debt, therefore unwilling and unable to service new debt due to a lack of real income growth.

So the problem for central banks and governments is how to get the money supply booming in an environment where consumers want to deleverage and save. Zero percent interest rates (ZIRP) are inflationary and negative real interest rates foment asset bubbles and encourage new debt accumulation. For decades central banks have used their control of the price of money to coerce boom cycles that eventually turn to bust. But for the past six years, their foray into ZIRP land hasn’t provided the boom cycle they were expecting. Sure, they have created massive bubbles in bonds and equities--but the economy has yet to enjoy the promised growth that is supposed to trickle down from creating these bubbles.  They have set the markets up for a bust, yet the economy never enjoyed the boom. 

This has left Keynesians scratching their respective heads and scheming new ways to encourage even more borrowing and spending. The Keynesians who rule the economy now control the price of money but are having difficulty controlling its supply and producing rapid inflation rates.

Bank deposits that pay nothing and ultra-low borrowing costs haven’t proved effective in boosting money supply and velocity growth. The growth rate of M3 has fallen from 9% in 2012, to under 4% today. And monetary velocity has steadily declined since the Great Recession began. Therefore, unfortunately, the next baneful government scheme is to push interest rates much further into negative territory in real terms; and also in nominal terms as well! 

You would think this is absolutely absurd but it is already happening. The European Central Bank, has a deposit rate of minus 0.2 percent and the Swiss National Bank, has a deposit rate of minus 0.75 percent. On April 21st the cost for banks to borrow from each other in euros (the euro interbank offered rate, or Euribor) tipped negative for the first time. And as of April 17th, bonds comprising 31% of the value of the Bloomberg Eurozone Sovereign Bond Index, were trading with negative yields.

Bond sell-off 'overdone' as US, European recoveries falter

Date

May 14, 2015 - 3:20PM

The retreat from government bonds was more emphatic during the so-called "taper tantrum" of 2013, analysts say. Photo: Bloomberg

The recent sell-off in bonds around the world has driven yields to year-to-date highs, prompting calls of a "correction" and "rout" as traders and investors unwind positions built up over more than a year.

However, as dramatic as recent movements have seemed, yields are still low by historical measures, say economists.

They also say any further sustained yield increases would have to reflect real economic fundamentals, such as improving growth or changing inflation expectations in Europe and the US.

With retail data this week confirming the spluttering nature of the US economic recovery, and the European comeback still fragile, implied bond returns will ease back, they say.

"Viewed over short horizons, the surge in yields is dramatic," says Capital Economics' Paul Ashworth. "From trough to peak, 10-year government yields in the US, UK and Germany have risen this year by around 70 basis points.

"Step back a bit, though, and these moves pale into insignificance," he said.

The current 0.72 per cent yield on the benchmark 10-year German Bund, for example, looks tiny beside a five-year high of 3.49 per cent in April 2011.

In any case, the retreat from government bonds was more emphatic during the so-called "taper tantrum" of 2013, when the US Federal Reserve announced  it would begin scaling back its $US70 billion a month bond-buying, or quantitative easing, program.

"The 2013 surge was much larger and it was ultimately reversed," Mr Ashworth said.

Australia's Clime Asset Management has also urged investors not to over-react to the recent bond market correction by dumping yield stocks in favour of equities that typically do better when economies are growing.

It, too, argues that while the recent bond market sell-off was overdue, it has also been overdone.

"A lot of people – commentators and investment banks – are telling investors to get out of yield stocks and get back into growth," Clime said in a note.

"Their reasoning is that bond yields usually rise following a recession as the market predicts an economic recovery and inflation.

"But we don't think this bond correction is indicative of a surge in inflation around the world, or a growth cycle recovery," it says. "The correction was simply indicative of a mispriced bond market."

This view has become the mantra among an array of fixed-income specialists, many of whom foresaw the current volatility in fixed income and currency markets.

They argue that the correction, partly brought on by short-selling tips from a line-up of bond market luminaries, reflects more the easing of disinflationary pressures around the world than the emergence of inflation.

A sustainable pick-up in growth rates would have to crystallise before bond yields settled into an upward trajectory.

For Australia, the bond sell-off, along with recent weakness in the US dollar, has created a new headache for Reserve Bank governor Glenn Stevens, who is keen to see a lower domestic currency.

Rather than follow convention and fall, the Aussie has climbed more than 3 per cent since the RBA cut the cash rate, for a second time this year, last Tuesday. The local unit hit a new four-month high of US81.29¢ in early local trade on Thursday, as the implied yield on the 10-year government bond climbed back above 3 per cent, compared with 2.3 per cent a month ago. 

"While this international [bond] sell-off was in full swing, the RBA cut rates but dropped the explicit easing bias, thereby kicking an own goal with regard to policy objectives," said Charlie Jamieson from Jamieson Coote Bonds.

"It is a staggering move that seemingly uses monetary policy ammunition but achieves none of the stated policy objectives.

"The currency has spiked higher,  rates have sold off and widened on cross market, equities sold off on higher rates, bank funding costs have risen, and property continues to bubble up in noted Sydney and Melbourne markets."

National Australia Bank's global co-head of foreign exchange strategy Ray Attrill agrees there is little relief in sight for those wanting a weaker Australian dollar.

"Glenn Stevens . . . must be crying into [his] cornflakes this morning," he wrote on Thursday.

"We still think foreign exchange intervention prospects  – from the RBA in particular – are very low, but that unless and until  the US dollar perks up alongside better data, there is little prospect of a meaningful near-term reversal in the Australian dollar."

http://www.smh.com.au/business/markets/bond-selloff-overdone-as-us-european-recoveries-falter-20150514-gh18kn

Buy on the dip: why it's time to snap up shares

May 14, 2015 - 3:29PM

Non-bank financial stock seemed to be a particularly good buy, says Deutsche. Photo: Reuters

Savvy investors should start buying up shares, according to Deutsche Bank and AMP Capital, with the recent dip in the market presenting some good buying opportunities.

And non-bank financial stocks like Perpetual and Iress seemed to be a particularly good buy, said Deutsche.

"The equity market has fallen 5 per cent since its peak in late April, qualifying as a dip," said the strategy update from Deutsche Bank. "From here, we expect the market to rise, and advise buying the dip for four reasons."

The four reasons were: 

the dip was due; 

valuations are reasonable; 

earnings momentum looks OK; and 

the current lack of analyst sentiment is actually positively correlated to market performance.

Regarding the recent dip in Australian shares, Deutsche noted that a correction was well overdue. "There has been 50 to 60 days on average between market falls over the past six years. The market lasted 94 days this time, so a dip was due," said Deutsche.

"The strong rally also suggested a dip was due – the market rose 16 per cent from the last dip to the most recent peak, compared to a 10 per cent average."

Deutsche added that its price-earnings ratio model suggested fair value was a PE ratio of 15.7. The current market had a ratio of 16. "Valuations have dropped to reasonable levels," said Deutsche. "It is justified given record low real interest rates."

The market PE ratio also looks reasonable relative to that of global markets. "Australia is back to a 2 per cent premium, in line with history."

Earnings – as measured by the earnings revision ratio and earnings forecasts – "are OK", said Deutsche. "The decent earnings backdrop also gives us confidence to buy this dip."

Lastly, the current poor levels of analyst sentiment were actually a good thing. "In the longer term, bearish sentiment has actually led to rising markets. It seems the lack of exuberance can lead to more orderly market conditions."

Non-bank financial stocks were particularly "attractive at current levels", said Deutsche. "They have underperformed most other sectors given their earnings are leveraged to the market. We expect a reversal."

These stocks included AMP, ASX, Challenger, Computershare, IOOF, Iress, Macquarie, Perpetual, Henderson Group, and Magellan. 

Deutsche said they had just added AMP to their model portfolio, along with Perpetual and Iress.

AMP Capital chief economist Shane Oliver also said he believed the market would pick up.

"Recent volatility represents just another correction," he said. "We remain of the view that we are still a long way from the peak in the investment cycle."

However, there were three of four "wobble drivers" affecting the global economy and volatility could have further to go, he said. 

These wobble drivers include the fact that May to November usually produced the leanest returns in sharemarkets, and rate hikes by the US Federal Reserve were usually associated with falls in the sharemarket.

"The start of the last two major interest rate tightening cycles by the Fed in 1994 and 2004 were associated with falls in US shares of 9 per cent and 8 per cent," Dr Oliver said. 

Greece is another concern, although he said "Europe remains far stronger than it was in 2010-2012 with significant budget repair and economic reforms and the European Central Bank's quantitative easing program. So a Graccident or even a Grexit is unlikely to derail the Eurozone economic recovery. But it could cause volatility."

Other "wobble drivers" are China's slowdown (although momentary easing should ensure growth comes in at the target rate of 7 per cent) plus geopolitical threats, namely Ukraine, Islamic State, the South China Sea, and Ebola. Dr Oliver said these threats "remain but have faded a bit".

Dr Oliver said Australian growth is likely to remain sub-par, but like other concerns this was unlikely to threaten the broader cyclical bull market. "The ASX200 should make 6000 by year's end." 

http://www.smh.com.au/business/markets/buy-on-the-dip-why-its-time-to-snap-up-shares-20150514-gh1by4.html

Here are Warren Buffett’s Six Acquisition Rules. Here Are 6 Rules For Investing Like Warren Buffett

Warren Buffett is unquestionably the greatest investor who has ever lived. He possesses an uncanny ability to choose incredible investments that explode in value over time.  This ability has earned him a place as the second wealthiest man alive today.

Despite his vast wealth, Warren continues display a public persona of humility and common folk wisdom.  This attitude has provided him the respect of working people as well as the ultra rich; a very rare combination in this day and age. He does not believe in personal or family dynasties and has pledged to give away 99% of his wealth in his will.

How Did Buffett Get So Wealthy?

Buffett learned his investing skills from Benjamin Graham, David Dodd and Phil Fisher.  He claims to be 85% Graham and 15% Fisher is his stock picking philosophy.

His basic investing concepts are the following:

1.  Look at stocks as individual businesses

2.  Use the market’s fluctuations to your advantage

3.  Be certain that there is a margin of safety built into all your investments. 

This stock picking method is widely known as value investing.

Value investing adheres to the idea of buying stocks that are under priced per fundamental analysis.  In other words, stocks are bought at a discount to their intrinsic proper market price.  This discount is what Buffett considered the margin of safety.

The best part about Buffett is his willingness to share his tactics and stock picking methods with everyone.  He really lays everything on the line so savvy investors are able to follow in his footsteps.  Not only does Buffett hold no secrets, he publishes a yearly investor letter that explains the minutia of his thought process.

His most recent letter carefully laid out the six things he insists upon prior to acquiring another company.  This criterion is easily applicable to every stock investor when choosing companies for investment.

Here are Warren Buffett’s Six Acquisition Rules

 1. Size

Buffett does not mess with small companies. The company need to produce a minimum of $75 million in pre-tax earnings.

2. Consistency

He has no interest in speculation when it comes to earnings.  In other words, future earnings, management forecasts, and any other future projections are not considered when making decisions.  Earning ability MUST be proven and consistent to spark any interest.

 3. Little to No Debt

The bottom line is that Buffett hates debt. The company must be earning solid returns without taking on debt.  Debt, while needed in some circumstances, is a profit killer.  Let the company pay off its initial debt first and prove itself before placing your first dollar at risk.  When in debt, companies can take unwise risks during slow times.  This potential simply creates too much risk to make a safe investment.

4. Management

There needs to be an experienced management team already in place before an investment is made.  Buffett has no interest in supplying management to run the company.  Management should be pedigreed with experience in prior positions or trained from the company itself.  Buffett looks for smart, talented people who can solve or better yet avoid problems.

5. Simplicity

You must be able to fully understand the businesses you are investing in.  If the company or its business is too complicated, avoid it.   Obviously, this rule can be bent as a stock market investor. While it is best to understand a company and its business completely, it’s not a hard and fast rule.   This rule goes hand in hand with Peter Lynch’s mantra of buying what you know.

 6. The company must be listed with a price

While this Buffet rule is not applicable to average stock investors it is important to understand.  Buffett does not buy companies without an asking price.  This goes back to belief in only buying sure things.  Firms without an asking price require too much negotiation effort to be worthwhile to Buffett.  Individual investors can apply this rule by only investing in listed companies.  Avoid investing directly in firms that are private or not listed on a stock exchange.  While these firms can be wildly lucrative, the unknown risk factors are sky high.

The Take Away

Warren Buffett is the greatest investor of all time.  Everyone can learn by studying his investing rules.  Make a point of reviewing his past writings and reading his yearly investor letters. The key to his most current wisdom is to avoid companies with debt and to embrace companies with consistent earnings.

By Manny Backus of TradingTips

Monday, March 16, 2015 4:12 PM EDT

http://www.talkmarkets.com/content/us-markets/here-are-6-rules-for-investing-like-warren-buffett?post=60935

China cuts interest rates for third time in six months as economy sputters

May 11, 2015

"China's economy is still facing relatively big downward pressure," the PBOC said.

China cut interest rates for the third time in six months on Sunday in a bid to lower companies' borrowing costs and stoke a sputtering economy that is headed for its worst year in a quarter of a century.

Analysts welcomed the widely-expected move, but predicted policymakers would relax reserve requirements and cut rates again in the coming months to counter the headwinds facing the world's second-largest economy.

The People's Bank of China (PBOC) said on its website it was lowering its benchmark, one-year lending rate by 25 basis points to 5.1 per cent from May 11. It cut the benchmark deposit rate by the same amount to 2.25 per cent.

"China's economy is still facing relatively big downward pressure," the PBOC said.

"At the same time, the overall level of domestic prices remains low, and real interest rates are still higher than the historical average," it said.

Sunday's rate cut came just days after weaker-than-expected April trade and inflation data, highlighting that China's economy is under persistent pressure from soft demand at home and abroad.

While the PBOC acknowledged the difficulties facing China's economy, it said in its statement accompanying the announcement that it wants to strike a balance between supporting growth and deepening structural reforms.

As part of these reforms, it lifted the ceiling for deposit rates on Sunday to 1.5 times the benchmark level, the biggest increase in the ceiling since it began to liberalise the interest rate system in 2012.

More easing ahead

Economists had said it was a matter of when, not if, China eased policy again after economic growth in the first quarter cooled to 7 per cent, a level not seen since the depths of the 2008/09 global financial crisis.

Indeed, some analysts have even said recently that the PBOC had fallen behind the curve by not responding aggressively enough to deteriorating conditions.

With China set to publish more key economic data on Wednesday, including industrial output and investment, the timing of the rate cut could add to worries that figures may disappoint across the board again, as they did in March.

For now, however, some were confident that policymakers can arrest the slide.

"Intensified policy loosening will help effectively halt the economic slowdown," said Xu Hongcai, a senior economist at China Centre for International Economic Exchanges, a well-connected think-tank in Beijing.

A cooling property market and slackening growth in manufacturing and investment have weighed on the Chinese economy. Annual growth is widely forecast to sag to 7 per cent this year, down from 7.4 per cent in 2014.

In an attempt to energise activity, the PBOC has now lowered interest rates and relaxed the reserve requirement ratio (RRR) five times in six months, and many economists believe more policy loosening is in store.

This is partly because despite the steady drum roll of policy easing, there are indications it has not benefited the real economy. Some data suggests banks are not passing on lower interest rates to borrowers, and credit is still not flowing to the sectors in most need of the funds.

"The effectiveness of the rate cut won't be very big," said Li Qilin, an economist at Minsheng Securities. "The PBOC has already cut benchmark interest rate by a total of 65 basis points, but borrowing costs have only fallen marginally."

Struggling banks

Banks are also struggling as the economy founders. Lending has slowed, bad loans are piling up, and profits margins are getting squeezed as China liberalises its interest rate market. Banks' earnings reports last month showed profit growth hit a six-year low in the first quarter.

Given these challenges, the PBOC said it does not expect banks to pay savers the maximum deposit rate allowed by authorities.

And with the prospect that borrowing costs may stay stubbornly elevated, government economists told Reuters earlier this month authorities may ramp up state spending to shore up growth, in the hope that fiscal policy would work where monetary policy hasn't.

But Li Huiyong, an economist at Shenwan Hongyuan Securities, cautioned against thinking that lower borrowing costs would not trickle down to businesses and consumers at some point.

"Don't underestimate the cumulative effect of the cuts in interest rates and RRR," Li said. "This won't be the last cut.

"The rate could be lowered to 2 per cent at least, and we expect the economy to gradually stabilise in the coming two quarters."

Reuters