Despite Uncertainty, Stocks Remain Long Term Winners

by Matt

in Investing

It is no secret that the stock market has been failing investors the past few years.  The global economic crisis began in 2008 and has taken many years to finally see some potential for recovery.  Despite what you read and hear on tv, the US economy is strongly improving but still lags recovery in housing.  Europe is still in a rough spot but signs of recovery show as well.

Unemployment is finally starting to go down as businesses start hiring again, GDP is at 2%, banks are lending slowly again, the list goes on.  However, there are two main issues that may derail the US if steps are not taken to resolve the issues. The issues are the national debt and housing.  Ultimately, I believe housing will recover once the unemployment rate drops a little further. Simply because how can you expect people to buy houses or keep them, for that matter, when they do not have a job?  Then there is debt.  Debt is the largest opponent in the way of a global recovery.  The US faced a considerable debt crisis back in August when it appeared that the United States would default on its debt (and you think the market is bad now, it would have put markets to 2009 lows!).  Luckily, the government got together and was able to side step default but it certainly sends a picture of how grave this global crisis really is.  Then you look over to Europe who is crumbling under its debt and walks a fine line between recovery and depression.  Analysts now predict that the chance of an European Union break up is at 40%.  That is a huge deal because if the EU fails, so does the markets and the world economy.  However, the ECB (European Central Bank) has taken steps recently to bolster ailing countries such as Italy, Spain, Greece, and France.

Now that I have scared you let me just remind you that despite the information above the world economy will pull through.  You better believe that if there was a serious chance of an EU fail that the US and China would provide Europe with bailout money, despite both countries refusing to give money to Europe.  Simply because the US and China have too much exposure to Europe and their economies would be devastated as a result.

This brings me to my main point of the article: buy stocks.  Stocks are still the best asset class for generating wealth, especially for Generation Y.  Despite all the uncertainty stocks still outperform other assets over the long term.  Also, Generation Y is nowhere near retirement yet and stocks are at lows not seen in decades.  If you are not into actively managing a portfolio then I suggest that you set aside a portion of your income every year to buy reliable, dividend paying stocks.  Possible candidates are Caterpillar (CAT), Apple (AAPL), Coca-Cola (KO), Chevron (CVX), and JPMorgan (JPM).  These stocks are you best bet if you simply want to have exposure to stocks but do not want to actively manage your portfolio.  On top of that, this is a nicely diversified portfolio.  Caterpillar is an industrial stock, Apple is technology, Coke is consumer products, Chevron is oil & gas, and JPMorgan is a financial stock.  These are all companies that you should be familiar with, making it easier to invest because you know what the company does and how they make their money.  However, I urge you to do your own homework on these stocks or any stocks, for that matter, before you buy them to make sure they fit within your wants and needs from a stock.

These companies all pay dividends (besides Apple, however, there is speculation that they may initiate a dividend next year), they are large cap and the best of breed in their sectors. Balance sheets are clean and stable and these stocks will not be hit as hard because they are diversified in their products and their global exposure.  Not to mention they are staple stocks, which means they are a necessity (yes, even Apple) and bought regardless of economic conditions.

Bottom line, you will never find a better rate of return than stocks.  There are a number of opportunities right now for investors looking to establish a long term portfolio without the needs to actively manage their accounts.  Please remember that it is important to do your own homework before buying stocks.  That means looking at balance sheets, income statements, cash flow, profitability ratios, etc that can be found on most financial websites like  Stocks are and always will be the most profitable asset class especially for Generation Y.

Disclosure: Long CAT

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