The ASX is diving again, sinking below 4000 and plunging investors into a world of fear and despair.
These are challenging times for investors. Portfolios are falling. Superannuation balances are shrinking. Nerves are frayed.
The press are having a field day. They positively feed off the doom and gloom, and readers lap it up. The occasional feel-good story is fine, but gloom sells.
A flick through the Australian Financial Review reinforces the concerns, summed up in these words…
"The Bank Spain governor has stepped down, amid talk the country needs a bailout package. Throw in China hosing down hopes of another stimulus package, a poor Italian bond auction, weak US economic figures, a nerw Greek poll showing increased support for anti austerity measures and it all adds up to tough times for investors."
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So, where's an investor to turn?
There's always a bull market somewhere
Bonds, of course. The bull market in bonds surges forward.
In the investment banking world, the bond market is far larger than the equities (share) market. In short, the bond market matters…a lot.
"Bond yields plunge…" leads the Australian Financial Review, reporting that 10-year Australian government bond yields fell below 3% for the first time in history "as a global hunt for safety dragged Australian investors into the world of super-low returns."
Bond prices rise when bond yields fall.
The pitifully low 10-year Australian government bond yield of 2.7% is telling us 3 things…
1. People are scared.
2. The Reserve Bank of Australia is set to cut interest rates further, starting next week.
3. People are idiots.
Who's the idiot?
Or maybe I'm the idiot.
Call me stupid if you like, but I just can't see the upside in buying 10-year government bonds yielding less than 3%, especially when, according to Mozo.com (no affiliation)…
- St George, part of Westpac (ASX: WBC), is offering 5-year term deposits at 5.50%.
- Bankwest, part of Commonwealth Bank (ASX: CBA) is offering a 6 month introductory rate of 5.65% for an instant access savings account.
- On a dividend basis, quality companies like Woolworths (ASX: WOW) are yielding a fully franked 4.64%. Gross up, that's 6.63%. And, the dividend is likely to grow.
Dividend stocks are in vogue, not surprisingly. Woolworths shares are up 2% over the past month. Unlike bonds and term deposits, Woolworths is growing, giving investors the potential of capital growth and income growth.
It's the best of both worlds.
Turn to dividend stocks
We like dividend stocks. We like the stability and the income. Both Motley Fool Share Advisor Investment Analyst Scott Phillips and myself own Woolworths.
But for all the stability of Woolworths, its best growth years are behind it. Heck, the Woolies share price has essentially been flat for 5 years.
Instead, we prefer to look for growth shares. Not necessarily for the next Maverick Drilling & Exploration (ASX: MAD), because stocks like that don't come around very often, but growing companies, with strong competitive advantages and long runways of growth ahead of them.
These are uncertain times. But, if you focus on identifying good, growing companies trading at attractive prices, you'll learn to embrace a falling market.
After all, who doesn't like a bargain?
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The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Bruce Jackson has an interest in WBC, CBA, MAD and WOW.
