Is the Dogs of The Dow Stock StreategyDead?
The “Dogs of The Dow” is a stock investing strategy that suggest you invest in the five top yielding stocks on the Dow Jones Industrial. Every year you review your investments and again purchase the new top five yielding stocks.
Historically, this strategy has averaged an 18% annual rate of return on investment. Not bad for an investment strategy that involved very little thought about the stocks?
Does it make sense now?
Given the state of the economy does this strategy still make sense? Will the companies that are at the bottom of the Dow, still be around in the near future?
According to the website Dogs of the Dow, the current dogs include:
- GE
- Alcoa
- Pfizer
- DuPont
- AT&T
These companies seem strong enough to alst the recession, but who knows for sure:
What is your theory?
Highest U.S. Unemployment Rate Since 1983
February’s unemployment rose to 8.1%, its highest level 25 more than 25 years.
The economy lost more than 600,000 jobs for the third month in a row. At this point roughly 12.5 million Americans are out of work.
Will It Continue?
Many have lost jobs, some have had to take pay cuts or forgo pay increases. Still others have lost benefits they once have had or have had their hours reduced.
What Do You Think?
Have you been hit by these cuts?
Ho long do you think it will last?
Simple Strategies to Pay Off Your Mortgage
One of your largest investments is the home you live in. The advantage of home ownership is in the equity you build into your home. The impact is twofold: First you are reducing the amount you owe the bank and thereby increasing the amount of value you can eventually extract. Second, the value of your home increases over time providing more value that can be extracted.
Now granted in late 2007 through 2008, the housing market in the United States took a deep hit in terms of value. Housing princes fell and many people were left with mortgages that exceeded the value of their home and left many with no value at all. If you find yourself in this situation, don’t overreact.
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Should I Invest Or Pay Off Personal Debt?
One question that I am often asked is whether it makes more sense to invest or pay off loans and other debt. The general answer to this question is to pay off your debts first because you will pay more in interest on your debts than you will earn on investments. A variation on this is to pay of non-deductible interest first. However, these “general answers” do not necessarily hold true in all cases.
The actual answer depends on the rate of interest you pay on the debt after tax and the after tax rate of return on your investments. Now it is important to note that in Canada that the interest you pay on debt is only deductible if the borrowed funds were used to earn income. Therefore, investment loans will have a lower after tax interest rate as compared to interest on personal loans or credit cards.
The general rule of thumb is must then be modified: If you can earn a higher, after tax return on your investments than the after-tax interest rate on your debt, then you should invest. Otherwise pay off your debts first.
The reason is simple. Your objective should be to pay the least amount of interest between the two alternatives. The additional interest you earn on the investment can be used to reduce your debt.
Consider the following:
Note: You must convert the interest rates to an effective annual rate to ensure they are comparable.
Where i is the stated annual rate, and n is the number of compounding periods per year.
If your mortgage rate is 5.25% and you are earning 8% on your investments annually, your effective annual rates on each are:
The investment income is subject to tax at your marginal tax rate.
If your marginal tax rate is 35%, then the after tax investment income is 4.4% and you are better off paying down your mortgage rather than investing.
However, if your marginal tax rate is 25%, then the after tax investment income is 6.0% and you are investing.
Another Factor To Consider
One other factor to consider is your overall level of debt and your ability to service your debt. If you have excessive amounts of debt or if you are not able to make your monthly payments and make all of your other commitments (rent, groceries, entertainment etc.) then you should concentrate on reducing your debt anyway.
Tips To Reduce Credit Card Debt Problems
The Moneygardener recently published an article defending the assertion that credit cards are a tool for managing discretionary spending and encouraging saving. Three reasons why credit cards are excellent vehicles for getting ahead financially are presented:
- Credit cards have zero transaction costs.
- Credit cards are widely accepted and convenient to use and reduces the
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