Seeking Alpha Review – Is the Premium Subscription Worth It?

At a glance

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Our rating

  • What It Is: Seeking Alpha is a stock market news and research website that produces more than 10,000 articles per month, designed to give readers investment ideas and tools for evaluating different investments.
  • Membership Fees: Basic, Free; Premium, $29.99 per month or $239.88 annually ($19.99 per month); Pro, $299 per month or $2,388 annually ($199 per month).
  • Pros: Detailed research and opinions from bears and bulls, proprietary rating systems, intuitive stock screener, portfolio monitoring, earnings calls and transcripts, and notable calls from Wall Street experts.
  • Cons: Relatively high monthly fee, many of the premium features can be found free elsewhere, few tools for technical traders, and the vast amount of information can overwhelm newcomers.

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Dig Deeper

Additional Resources

Everything you read when it comes to learning how to invest tells you that research is the foundation of profitable investment choices. One of the best research tools for the fundamental investor is found at SeekingAlpha.com.

Seeking Alpha is an investment research service fueled by more than 7,000 contributors who produce more than 10,000 articles per month, with each having a unique stance on the topics they cover. Investors can benefit quite a bit from the company’s free services, but if you’re willing to pay for the premium service, even more tools are unlocked.

What Is Seeking Alpha?

At its core, Seeking Alpha is a crowdsourcing website that sources valuable investment research through a vast consortium of contributors. Seeking Alpha was designed for individual investors who are interested in choosing individual stocks. 

The vast majority of the content on the website is available for free for the first 10 days after publication. However, if you’re interested in in-depth research, stock screening tools, and proprietary rating systems, you’ll need to sign up for one of the company’s subscription services.


Pricing

There are three different pricing models available.

  1. Basic. The Basic subscription is absolutely free. With this subscription, you’ll gain access to free articles for the first 10 days after their publication as well as some portfolio management tools. For most casual investors who aren’t interested in diving deep into research and fundamental analysis, the Basic subscription is a great fit. 
  2. Premium. The Premium service unlocks all articles on the website regardless of their age. Premium members also get access to a customized news platform, an intuitive stock screener, proprietary Quant ratings, unlimited conference call transcripts, earnings call audio, and exclusive author ratings. In exchange, members agree to pay $29.99 per month or $239.88 paid annually ($19.99 per month). You can also try before you buy with the company’s 14-day free trial. 
  3. Pro. The Pro service comes with a price tag that will turn off most mom-and-pop investors at $299 per month or $2,388 paid annually ($199 per month). Designed for investors who manage large portfolios, the Pro service offers a curated collection of the most in-depth research offered through the platform. 

Key Features

As a research-centric service, the vast majority of key features offered by Seeking Alpha have to do with getting to know the companies you invest in before risking your hard-earned money on them. Some of the most exciting features you’ll gain access to when you sign up include:

Thorough Investment Research

With more than 7,000 contributors offering up more than 10,000 articles per month, you’ll have everything you need to research just about any publicly traded company and make a quality investment decision.

The vast majority of these articles are labeled as investment ideas that fall into one of the following categories:

  • Long Ideas. Long ideas are investment ideas centered around stocks that the authors believe will head up in value in the long term. 
  • IPO Analysis. Initial public offerings, or IPOs, are a hot topic among investors, and tools that help determine whether an IPO is priced fairly and has strong potential to grow in value are invaluable. The IPO analysis offered by Seeking Alpha is one of the best ways to go about analyzing an IPO trade.
  • Quick Picks. Quick picks are articles centered around stocks based on a specific investment theme or fundamental data. 
  • Fund Letters. Fund letters is a curated list of select letters from professionally managed funds to their investors outlining the investing landscape and their goals moving forward. 
  • Editor’s Picks. Editor’s picks are articles that are hand-selected by the editors at Seeking Alpha based on in-depth research, the author’s track record, and other factors.  
  • Stock Ideas by Sector. The Stock Ideas by Sector section of the Seeking Alpha website lets you quickly scan through any sector of the market. 

Beyond the basic search functions of the website and access to all articles regardless of how old they are, Premium members also enjoy a customizable news dashboard that displays articles on stocks and investment strategies they’re interested in first, making combing through the vast sea of content on SeekingAlpha.com far easier. 

Note that although investment ideas are shared on the company’s website, nothing on the site constitutes investment advice. The author couldn’t possibly know your unique goals, financial capabilities, risk tolerance, and other factors that make you, well, you. The platform is designed as a research tool. You should never blindly make an investment just because the title of an article on the platform suggests big gains are ahead. 

Article Sidebar

The article sidebar is a feature that’s only available to Seeking Alpha Premium subscribers, but it alone is worth the subscription fee for many investors. 

When making investment decisions based on what you read online, it’s important to validate the source of the research and ensure the author and the stock are worth following in the first place. The Article Sidebar makes this simple to do at a glance by offering a brief bullish and bearish synopsis of the stock, stock ratings from the authors on the platform, a real-time stock price chart, and ratings for the author who contributed the piece.

Quant Ratings

Technology and computerized trading algorithms have reshaped the investing industry. Today, the market is more active than ever before, and algorithms provide a trove of data on the potential of any investment. 

However, the details offered up by these algorithms are often difficult to understand, and therefore often are ignored by novice investors. 

The good news is that Seeking Alpha offers its readers quant ratings, which algorithmically rate stocks in an easy-to-understand way. These ratings are based on five key factors: value, growth, profitability, EPS revisions, and momentum.

Factor Scorecards

Factor investing has become a popular concept. The idea is that by investing in stocks that come with risk premiums like small-cap, value, growth, and other characteristics, you’ll be able to beat the average market performance in your portfolio. 

When analyzing these factors, Seeking Alpha offers an easy-to-understand score ranging from A+ to F.

  • REIT Scorecard: On scorecards for real estate investment trusts (REITs), Seeking Alpha provides scores based on funds from operations as well as adjusted funds from operations. 
  • Dividend Stock Scorecard: Dividend stocks are a great way to generate income through your investments. The Dividend Stock Scorecard takes various factors into account, considering not only whether the stock pays competitive dividends, but also whether those dividends are sustainable. 

Earnings Call Transcripts & Recordings

Earnings reports are some of the most important events in the stock market. Every quarter, publicly traded companies are required to provide updated financial information, letting investors in on the financial stability and growth prospects for the company. 

Basic members have access to earnings call transcripts, but if you want to listen to the recorded calls, you’ll need to upgrade to a Premium subscription. 

Earnings Estimates & Surprises

Basic members have access to past earnings data from the company’s they’re interested in as well as information on dividends. 

For premium members, the data becomes a bit more intuitive, offering analyst forecasts and earnings surprises, which show the extent to which the company beat or missed earnings expectations in recent quarters. 

Notable Calls

Across Wall Street, there are tons of investment grade funds and investing professionals that manage money for individual investors. These fund managers often provide quarterly letters to their investors outlining the state of the market and how they plan on capitalizing on it in the future. 

The Notable Calls section of the website, only accessible by Premium and Pro members, is a curated list of these quarterly announcements from some of the most well-respected hedge funds and investment-grade funds. 

Intuitive Stock Screener

Stock screeners make it easy to find the types of opportunities you’re looking for in the stock market. It seems as though every investing-centric website offers one. However, the screener offered by Seeking Alpha is one of the best in the business. 

As with any stock screener, you’ll be able to screen opportunities by volume, sector, stock price, and more. However, what’s unique about the Seeking Alpha screener is that it lets you screen stocks based on the company’s proprietary Quant Ratings and Factor Scores. 

So, if you’re looking for a technology stock that has both a high Quant Rating and Factor Score and is experiencing exceptionally high volume, you won’t have any issues digging an opportunity up. 

Personalized Alerts

Personalized alerts are available to all Seeking Alpha subscribers. These alerts come via email, informing you of any news and analyst upgrades or downgrades of the stocks you’re interested in. 

While the service is available to all users, Premium members get all the data in the email they receive, while Basic members must click to the Seeking Alpha website to see the full information associated with the alert. 

Portfolio Monitoring

Investors are able to connect their live investment portfolios to Seeking Alpha and monitor their holdings through the platform. Through the portfolio monitoring service, you’ll be able to track your portfolio and pinpoint the investments that are doing best and worst for you. 

Moreover, when you attach your portfolio, you’ll receive alerts when news and opinion articles are published around a ticker you invest in. Premium members enjoy faster time-to-delivery, ensuring you’re one of the first to see the news on stocks you invest in. 


Advantages

Seeking Alpha is one of the most successful investing-centric websites online today, and that popularity didn’t just happen out of the blue. There are several benefits to taking advantage of the services provided by the company, the most significant being:

1. Investing Ideas

Finding quality investment opportunities is arguably one of the most difficult parts of the investing process. Seeking Alpha is essentially a curated list of the best investment ideas produced by thousands of authors. 

Considering the sheer scale of content produced, you’ll be able to find quality ideas no matter whether your preferred style of investing is growth, value, or income.  

2. Free Services

For many investors, the content available under the Basic membership will provide everything you need to make wise decisions in the stock market.  

3. Proprietary Scores

The proprietary scoring system used by the company to provide at-a-glance information about stocks is second to none. Not only does the company take general fundamental data into account when creating these scores, it adds in a risk premium factor that’s difficult to find elsewhere.

4. Portfolio Monitoring

When managing your own self-directed investment portfolio, monitoring your performance in the market is key. The company makes this simple for both free and paid users, including email alerts when important news is released about a stock you’ve invested in.  


Disadvantages

Sure, there are plenty of reasons to consider signing up for this service. However, as with any rose, there are some thorns to be mindful of before grabbing a fistful and taking a whiff:

1. Not the Best Option for Technical Traders

If you’re a swing trader or day trader who relies heavily on technical analysis, you won’t find much value in the service. The company’s core focus is on providing fundamental data and research, and it leaves most technical data to companies that focus on providing that type of information. 

2. Many Features Are Found Elsewhere Free

While the company does make it easy to access tools in one space, much of what it provides can be found elsewhere for free. For example, there are tons of websites that publish free opinion articles on stocks, and a simple search on Google will provide a list of articles on the stocks you’re interested in. 

Moreover, stock screeners, portfolio monitoring services, and earnings data are all widely available for free online. However, it is worth mentioning that most free services don’t go as far in depth as the tools available at Seeking Alpha. 

3. It’s Expensive

Sure, $29.99 per month doesn’t sound like much, but if you have a beginner investment portfolio that consists of $1,000 in stocks, you’ll have to earn a return of nearly 3% per month just to cover the cost of the service. As such, the Premium service is most worthwhile for investors who have a portfolio value of at least $10,000. 

4. No Buy Recommendations

Seeking Alpha is not an alert service. In fact, the disclaimer on all articles on the website suggest that investors should make their own decisions. There are plenty of services with similar pricing that actually offer alerts, recommending when investors should buy or sell stocks. If you’re looking for an alert service that does so, you’ll have to look elsewhere.  


Final Word

All in all, Seeking Alpha is a great tool for the fundamental investor who takes the time to research what they’re buying before diving into a stock. With so many authors and articles on the platform, investors are able to see stocks they’re interested in from multiple points of view, helping to avoid investing based on a few skewed opinions. 

Moreover, Seeking Alpha is a great add-on service to those who use the Motley Fool Stock Advisor, which gives two trade ideas per month. By cross-referencing the ideas provided through the Motley Fool or another alert service with the in-depth research Seeking Alpha provides, you’ll be able to form educated opinions about whether the recommendations are worth following. 

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The Verdict

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Our rating

Seeking Alpha is a valuable research tool for the fundamental investor. While it doesn’t offer much for technical traders and has a relatively high premium membership fee (starting at $29.99 per month), it is a great option for active investors looking to add detailed research to their repertoire of tools.

While there are plenty of benefits for paying subscribers, the service is relatively expensive compared to its competitors, and some premium features can be found elsewhere for free. However, active fundamental investors will benefit greatly from the detailed research and proprietary scoring system Seeking Alpha offers.

Editorial Note:
The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Source: moneycrashers.com

Bilt Rewards: Earn 5x On All Purchases (Excluding Rent)

The Offer

Direct link to offer

  • Bilt Rewards is offering 5x on all purchases. Maximum of 50,000 points

The Fine Print

  • Qualifying transactions can be made in person or online, and remember you always have access to your digital Bilt Card in the Bilt Rewards app.
  • The following types of transactions will not count as a Qualifying Purchase for this promotion: balance transfers; cash advances; purchase of travelers’ checks, foreign currency, money orders, wire transfers or similar cash-like transactions; purchase of lottery tickets, casino gaming chips, race track wagers or similar betting transactions; writing or cashing checks; unauthorized or fraudulent charges; gift cards and other cash-like instruments.
  • See all promotion terms and conditions here.

Our Verdict

Will be interesting to see how tolerant Bilt is towards manufactured spending for this promotion, terms do specifically exclude cash like purchases and gift cards. Bilt recently made significant changes to make the card and program better. If you don’t already have the card you can apply and then the digital version is  available in the Bilt Rewards app instantly.

Source: doctorofcredit.com

Stock Market Corrections – What Are They and How to Handle Them

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Dig Deeper

Additional Resources

People look to the stock market as a way to build and protect wealth, but experienced investors know it doesn’t always work out that way. The market moves through a series of peaks and valleys, often leading to overvaluations or undervaluations. 

When a long-term bull market takes place, investors know that a dreaded downturn on Wall Street is likely ahead. 

These drawdowns, or market corrections, are periods when stock valuations fall. They tend to cause some investors to panic, but there’s no need to be alarmed. These occasional declines are perfectly normal, and most consider them necessary in a healthy U.S. stock market. 

Here’s everything you need to know about market corrections. 

What Is a Stock Market Correction?

A correction is a downward market trend characterized by the value of a financial asset falling at least 10% from its most recent peak. 

For example, imagine stock ABC was trading at a peak of $100 per share 45 days ago. Today, the stock is trading at $89 per share, down $11 or 11% from recent highs. Since the decline is greater than 10%, the move would be considered a correction. 

These market declines are often riddled with volatility as investors race to sell, hoping to protect themselves from further financial pain. 

However, as you’ll learn below, a sudden drop in stock prices from recent highs isn’t always a reason to sell. In fact, corrections are often the best time to buy more shares of your favorite stocks, practicing dollar-cost averaging and increasing your overall return potential. 

Here are a few important facts about corrections:

There Are Different Levels of Stock Market Corrections

First and foremost, market corrections take place on varying levels:

Individual Stocks

Like in the example above, corrections often happen on individual stocks. They can be spurred by bad news like missed earnings or revenue expectations, or they can come completely out of the blue as a group of investors decides it’s time to take a profit. These corrections only tend to affect a single stock. 

Sectors

Some corrections wreak havoc on entire sectors, sending nearly every stock in an industry down a slide. For example, sudden shocks to the price of oil might put the oil and gas sector into a correction, or new legislation targeting drug prices might send the pharmaceutical sector into a slump. 

Regional

Some events can lead entire financial markets in a specific region on a spiral downward. For example, when tariffs were placed on Chinese goods entering the United States, Chinese stocks took a dive, resulting in a regional correction.

Market

Finally, corrections can happen across the global market. During a stock market correction, the entire market drops. These events are characterized by simultaneous declines of 10% or more throughout major market indexes around the globe. 

Corrections Are Generally Short-Lived

While some market corrections lead to long-lasting bear markets, the vast majority of corrections are actually short-term sell-offs. In fact, only 10 out of the past 37 corrections from 1980 to 2018 resulted in bear markets, with the rest turning out to be short-term blips. 

In general, corrections last between three and four months. Once the event is over, the market generally rebounds quickly, resulting in tremendous earnings potential. So, it’s important not to panic when these events take place; keeping a level head and paying attention to market conditions will likely open the door to several profitable opportunities.  

A Correction Isn’t the Same as a Bear Market

Both corrections and bear markets are characterized by stock market crashes. However, there are a few important differences between the two:

  • Percentage Declines. Bear markets are generally characterized by declines of 20% or more from recent peak values rather than 10% declines. 
  • Term. When the bears take hold of a sector, region, or the whole market, they tend to maintain control for some time. According to Hartford Funds, the average bear market lasts 9.6 months, which is substantially longer than the three to four months the average correction takes to subside. 
  • Cause. Corrections can take place out of the blue when the investing masses decide it’s time to take profit. However, bear markets are generally more meaningful. These long-standing declines are usually signs of concerning economic conditions, geopolitical conditions, or a mix of the two. 

Corrections Happen Often

As mentioned above, 37 corrections took place from 1980 to 2018, working out to slightly less than one per year on average. That stands as evidence that you shouldn’t panic when it happens. 

While the talking heads on financial media will make a big deal out of any correction that takes place, level heads prevail in the stock market. 


Examples of Corrections

One of the best ways to get an understanding of the nature of stock market corrections is to look at a few examples from history. 

One of the most recent market-wide corrections was caused by the coronavirus pandemic in 2020. As the virus spread, hair salons, movie theaters, amusement parks, and shopping malls were considered nonessential and forced to shut down for months. This led to widespread job loss, corporate bankruptcies, and reduced consumer spending. 

As a result, the market started to tank. 

Soon, the correction caused by the pandemic became an all-out bear market, leading the S&P 500 index, Dow Jones Industrial Average, and the Nasdaq all down by more than 30%. It took 10 months for all three indexes to make a full recovery. 

Another example occurred in February 2018, when the Dow Jones Industrial Average and the S&P 500 index fell by more than 10% each. While the correction was prompted by inflation-related concerns, the profit-taking proved to be overblown in the long run. By mid-March 2018, prices began to rise, eventually making a full recovery.


What Corrections Tell You

Market corrections aren’t always as informative as you might think. They can be a sign of healthy market and economic conditions as valuations balance themselves out, acting as a perfectly normal part of the financial system. 

For example, if a correction happens out of the blue at a time when economic growth is at its peak, corporations are experiencing growth in profitability, and geopolitical conditions are stable, the move is likely nothing more than investors taking profits, and it will soon be over.

On the other hand, when coupled with concerning fundamental data, corrections can be signs of tough times to come.

For example, if recent economic reports show slowing new home sales, increasing unemployment insurance claims, and declining consumer spending, and stocks slide by 10% or more, the move could be a sign that an economic recession and all-out bear market is on the horizon. 


What to Do if a Stock Market Correction Takes Place

Although it may come as a surprise, many long-term investors do nothing at all when market downturns set in. These investors know that the vast majority of corrections won’t last long, and they avoid knee-jerk reactions when it happens. Riding out corrections is the favored approach of buy-and-hold investors, especially those with a long-term outlook. 

On the other hand, some seasoned active investors take steps in order to make the declines work to their advantage. Here’s how:

1. Rebalance

If you’ve been following a solid investment strategy, your asset allocation was thoughtfully chosen to provide diversification. 

Unfortunately, over time, your allocation will fall out of balance as some assets move at faster rates and in different directions than others. When imbalance happens, it can leave you either overexposed to risk or underexposed to opportunity. 

With the market edging down, it’s crucial to make sure your allocation isn’t out of balance and the protections you’ve put in place are able to work to your advantage. Now is the time to rebalance your investment portfolio. 

2. Assess the Correction

Next, you’ll want to determine what type of correction you’re seeing and whether the move is likely to continue into a bear market. Ask yourself the following questions:

  • How Widespread Is the Correction? Are you noticing the move on a single stock or single index? Take time to look around and see if it’s more widespread. Look into what the Dow Jones Industrial Average, Nasdaq composite index, and S&P 500 index are doing. If they’re all falling at a similar rate, the correction is a widespread one. 
  • Is There a Clear Cause? Corrections can come out of nowhere with no rhyme or reason, or they may be the result of deep underlying issues. The only way to find out is to do a bit of research. 
  • How Deep Is the Cause? Did the U.S. Federal Reserve raise interest rates by a quarter of a percent? If so, although the move may slow lending slightly, it’s a sign that the U.S. economy is doing well, and the market will likely recover quickly. On the other hand, if war was just declared or jobs reports have shown months-long declines in hiring, there may be cause for long-term concern.

3. Act On What You’ve Learned

There are several different actions you could take based on your answers to the questions above, but they’ll all boil down to one of the following:

If it’s a Single Stock or Sector Correction With No Apparent Cause

If the move is in a single stock or sector, and there’s no clear rhyme or reason to it, you’re in luck — you’ve found a buying opportunity. 

Traders take profits all the time, and this profit-taking can lead to painful, short-term declines. Although there’s no telling where the bottom will be, now is the time to strategically buy more shares in a company you like. Here are a few tips for doing so:

  • Set the Floor. If the sell-off has no rhyme or reason, it’s likely a technical move in which traders are taking profits. This means that there will likely be a clear point of support. Use technical analysis to find the support level. 
  • Buy Even Blocks of Shares. As the stock continues to fall to support, make consistent, equal purchases of blocks of shares. This process of dollar-cost averaging ensures you don’t lose too much with a large purchase before further declines or miss out on opportunities when the rebound happens. As the stock falls, your average cost per share will fall as well. When the rebound happens, that reduced average cost means larger gains. 
  • Set Stop-Loss Orders. Set stop-loss or stop-limit orders just below the support level. If the stock falls below this point, there may be a significant underlying reason for the declines. It’s time to exit the position and reassess the situation. 

If it’s a Single Stock With a Short-Term Cause

In some cases, there will be good reasons for a single stock taking a dive, but those reasons will only lead to short-term movement. 

For example, a company may miss earnings or revenue expectations in a single quarter, leading to fear among investors. In this case, the company’s stock will likely fall, but if the company is solid, it will make up the losses and then some in the long run. 

If this is the case, consider using the dollar-cost averaging method described above to gain further exposure to the rebound. 

If it’s a Single Stock With a Serious Problem

If the correction takes place in a single stock and the reason is both clear and long term, it’s time to sell and accept your losses. 

For example, imagine a biotech company you’ve invested in has been working to find the cure for a devastating ailment. Things looked great. However, the FDA rejected the drug, and the company decided it’s going to cut its losses and go back to the drawing board. At this point, the stock’s losses are likely to continue for some time. 

In this case, it’s best to cut your losses and look for a more promising opportunity elsewhere. 

If the Entire Market Is Falling

If you’re looking at a market-wide correction, there are a few things to consider. In the majority of cases, if the entire market is falling, there’s a reason, regardless of how clear or unclear that reason may be. 

One of the most common reasons for market-wide corrections is high valuations. Movement in the market takes place through a series of ebbs and flows. However, when the market flows up too fast without enough ebbs in between, overvaluations happen, and investors begin to take profits. 

These are generally short-term moves and nothing to be concerned about. As a result, outside of buying in on undervalued opportunities as prices fall, there’s not much action that needs to be taken. 

On the other hand, corrections can be signs of deep economic or geopolitical concerns. For example, if job growth in the U.S. seems to be plateauing, home sales are slowing, and unemployment lines are growing during a market correction, all these signs together point to a potential economic recession, which could cause the correction to turn into a long-term bear market. 

Even in this case, it’s important not to panic. After all, panicking leads to poor decision making.

Instead, consider making adjustments to your asset allocation to reduce your overall risk. To do so, move a portion of your money out of stocks and into fixed-income securities and other safe-haven assets. 

After doing so, keep a close eye on economic data. When the economy begins to improve, it’s time to go shopping for discounts in the stock market. At this point, long-term declines will have led the valuations of many quality companies into the dumps, which is great news for buyers. Buying in at these lows will often lead to jaw-dropping profits.

4. Consider Speaking to a Financial Advisor

If the market’s experiencing declines, and you’re not sure what to do, one of the best courses of action is to speak to a professional. 

Sure, it may cost a few hundred dollars to get a financial advisor’s ear for an hour, but those few hundred dollars could save you thousands — or, even better, help you turn a profit in a down market. 

When you have a leak, you call a roofer, even though you know that will cost you more money than doing the research and fixing the roof yourself. There’s no reason to be ashamed to call a financial pro when you have questions about your money and activities in the market. 


Pros and Cons of Market Corrections

Although corrections may be concerning at first glance, they’re not all doom and gloom. In fact, there are several benefits to corrections happening as well. Here are the pros and cons of these moves:

Market Correction Pros

1. Discounted Buying Opportunities

The basic concept of making money in the stock market is the act of buying low and selling high. If you’re looking for a strong entry point, there are few better than in the midst of a correction. During these times, stocks are undervalued, offering discounted opportunities to get in on future gains. 

2. Market Health

Financial markets are complex systems with multiple moving parts, and for those systems to work properly, there have to be checks and balances. Corrections help to keep the market balanced, which is necessary for a healthy system overall. An occasional round of profit-taking helps to keep euphoria in check. 

3. Set the Stage for Bull Markets

A far smaller portion of corrections become bear markets than are followed by bull markets. Statistically, these moves are more often than not signs of a bull market on the horizon. 

Market Correction Cons

Unfortunately, market corrections come with some drawbacks, the most important being:

1. Retail Investor Panic

The biggest victims of corrections are often inexperienced retail investors who panic and sell when stocks fall. While the retail crowd sells for a loss, savvy investors — often institutional investors or experienced traders — are picking up their shares and enjoying the gains the average investor would have had if they’d simply kept a level head. 

2. Can Be Signs of Bear Markets

Although a market correction is more likely to be followed by a bull market than a bear market, there are times when bear markets do set in. If economic conditions are troubling, a correction can be a signal of something even worse ahead. It’s important to understand the reason for the correction and determine whether a long-term bear market is likely before deciding how to react. 

3. Short-Term Financial Pain

Finally, stock market corrections aren’t significant points of pain for everyone. Although nobody likes to see short-term losses, for some investors, the moves can come with significant financial concern. 

This is particularly the case for investors with a short time horizon, like retirees. Investors who are dependent on the income generated through their portfolios often have to withdraw money to survive during market corrections. Unfortunately, these investors don’t always have the option of waiting for the correction to end and may be forced to realize significant losses. 


Final Word

All told, corrections aren’t quite as scary as they’re cracked up to be. Sure, losses can and often do happen during these downward moves. However, they’re important cycles that help to keep the overall financial machine healthy. 

Not to mention, savvy investors can make corrections work to their advantage by strategically buying undervalued stocks for a discount to take advantage of the gains that are likely to follow. 

No matter what your plan is during a market correction, it’s important not to panic. Level heads make educated decisions, and educated decisions usually equate to profits in the stock market.

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Source: moneycrashers.com

How to Write a Rent Increase Letter To Your Tenants

Follow this process to notify your tenant of an upcoming rent increase.

Increasing rent each year is a common practice for many property managers. And when the time comes, you need to write a rent increase letter to tenants informing them of the change.

Many states have rental laws that stipulate how much you can raise a tenant’s rent, when you can increase rent and how and when you’re required to notify tenants that their rent is going up. Standardizing this process will help you apply rent increases consistently and equitably for all your tenants.

Not sure how to write a rent increase letter? Here’s an overview of what the letter should include, how to send it and when to deliver the notice to your tenant.

Reasons to raise a tenant’s rent

If you’re planning to raise rent sometime soon, you’re not alone. Over the past year, rent prices have crept up about 20 percent nationwide, according to ApartmentGuide. The reason is that there are fewer rental properties available and a large number of renters are looking for affordable properties. Keeping up with the local real estate market is one reason property owners increase rent each year.

You might also raise the rent if there’s a rise in property taxes, insurance, homeowners association fees or utility prices. Another reason is if you made significant upgrades or repairs to the home. Increasing rent can help cover some of these expenses.

You can’t increase rent for retaliatory or discriminatory reasons, however. The federal Fair Housing Act prohibits discrimination in housing based on race, religion, color, national origin, family status, sex or disability. Raising rent based on how many children a family has could violate this law, for example. Many states prohibit rent increases solely because you had a negative interaction with the renter.

Man working on a calculator

Man working on a calculator

How much can I raise the rent?

In October 2021, rent for a one-bedroom apartment averaged $1,660 nationally and $1,964 for a two-bedroom. The average rent increase is usually 3 percent to 5 percent a year. If rent is $1,660 a month, an increase would be $49 to $83.

In most cases, property owners can technically increase the rent as much as they want, but only by a reasonable amount. Raising rent too much could turn off a great tenant, and it will likely cost more to have the apartment sitting vacant.

When deciding how much to increase a tenant’s rent, it’s best to start with your local landlord-tenant laws. Some states or municipalities may cap rent increases or not allow rent to exceed a certain amount, especially if the property is rent-controlled.

When is the best time to increase the rent?

Property managers can’t raise the rent on a whim or in the middle of a lease term. When a tenant signs a lease, they agree to a specific rent amount for a certain timeframe. Some leases specify how rent increases work and how much rent will go up. Rent increases should occur once the lease term ends, which is usually every 12 months.

You can propose a rent increase ahead of a lease ending with it going into effect once the term expires — however, the tenant doesn’t have to agree to it. The renter can choose not to renew the lease with higher rent and move out. If they stay in the home after the lease expires, you have the right to go through the eviction process.

When to send a rent increase letter

You must provide tenants with written notice before raising the rent. State laws specify the timeframe for when you should send the notice, but it’s usually 30 days before a lease term ends or when the increase will take effect. Then, give renters time to respond to the notice — if they agree to the rent increase and will renew their lease or they’re not renewing and plan to move out.

Woman putting. a letter into an envelope

Woman putting. a letter into an envelope

How to write a rent increase letter to tenants

A rent increase letter serves two purposes. It notifies tenants that their rent is going up and is official documentation that you notified them of the increase within the required timeframe.

When writing a rent increase letter, keep the tone professional but friendly — and be clear and direct. Make sure your letter includes these elements:

  • Name of the tenant
  • Property address
  • Name and contact information for the property manager (or property owner)
  • Date of the letter
  • Date the rent increase will go into effect
  • Amount of the rent increase
  • Amount of the current rent
  • Date first new rent payment will be due
  • Mention the current lease agreement’s expiration date
  • Include a timeframe for when the tenant must notify you that they’re not renewing their lease

Sample rent increase letter to tenants

Here’s a rent increase letter template that you can use to notify your tenants. Simply update anything in brackets. You can also download a PDF or word document of this file.

[Property manager or owner name]
[Address]
[City, state, ZIP Code]
[Phone number and email address]

[Date of notice]

[Tenant’s name]
[Property address]
[City, state, ZIP Code]

Dear [Tenant’s name],

This notice is to inform you that beginning [date the rent will increase], the monthly rent that you pay to occupy the unit at [property address] will increase if you choose to renew your lease. Your current lease expires on [date of lease expiration].

The current monthly rent is [amount of current rent] and your new rent amount will be [amount of new rent]. The first payment at the new monthly rent amount will be due [include date payment is due].

Please let us know if you agree to this increase. Check one of the boxes below and sign and return this notice to the address provided by [date to return the notice]:

I agree to the rent increase of [amount of new rent] effective [date the rent will increase]. Please send me a lease renewal.

I do not agree to the rent increase and will vacate the unit by [date to move out], as specified in the lease agreement.

Please let us know if you have any questions about this notice.

Sincerely,

[Property owner/manager’s name]
[Property owner/manager’s signature]
[Tenant’s signature]

How to deliver the rent increase letter

Check with your local laws to see if you’re required to deliver a rent increase notice via a certain method. You can hand-deliver the notice by leaving it on the tenant’s front door.

If you mail the rent increase letter, send it certified mail, which provides confirmation that the tenant received it. Email is another option. Just make sure you include a read receipt to ensure they received the message.

Play by the rules

Increasing rent is a standard part of running a rental property. You just need to make sure you’re following all state and local laws regarding how much and when you can raise rent and how to notify tenants.

When you list the property with Rent.com, you can collect rent online, as well as accept applications and screen tenants.

Source: rent.com

41 Jacksonville Facts That Only Real Locals Know are True

Beaches, colleges and having the most land inside of city limits are just a small part of what it means to live in Jacksonville.

Whether you’ve lived here your whole life or just moved in, there are some things you seriously ought to know about this crazy town filled with palm trees, surf and golf courses. Take a look at these Jacksonville facts — some of which are pretty crazy — and get the lowdown on the city. You’ll sound like a real local in no time and be the best tour guide around when friends pop in for a visit to Jax. Just don’t forget your sunblock for all those sunny, hot days.

41 Jacksonville facts any good Jaxson knows

1. Jacksonville has the largest square mileage within city limits in the nation, with over 875 square miles of land. It’s also the most populous city in both the state of Florida and the southeastern United States. Now, I hear you — what about Miami or Atlanta? Jacksonville has all those people within city limits while the other cities include the greater metro areas for their population counts.

2. Overall, Jax is the 12th most populous city in the country. Crazy Jacksonville fact, right?

3. The highest point in Jacksonville only rises to 190 feet above sea level, on the Trail Ridge, along the boundary with Baker County.

Friendship fountain, Jacksonville, FL

Friendship fountain, Jacksonville, FL

4. At one point, the Friendship Fountain, located in downtown Jax, was the largest and tallest fountain in the world (when it was built). The fountain remains one of the city’s most recognizable landmarks and, of course, a popular attraction for tourists. The fountain was designed by Taylor Hardwick of Jacksonville and opened in 1965.

5. Folks from this city on the east coast of Florida are known as Jacksonvillians, Jaxsons or Jaxons.

6. Jacksonville has become a prime real estate location, with tons of foreign investors buying things up. The city is considered one of the 20 busiest real estate towns in the country. So, better get that search going and rent your dream Jacksonville apartment before someone beats you to it!

7. The Fort Caroline National Memorial marks the location of the first European settlement in Florida in 1564. The original settlement was destroyed by Spanish conquerors in 1565, though, so not much remains of that original settlement.

8. Big cat lovers adore Jacksonville. The Catty Shack Ranch Wildlife Sanctuary is located here and is a forever home for rescued big cats. You’ll find lions, tigers, cougars, bobcats, leopards and others here, where they’re loved and cared for. You can visit whenever they’re open and learn more about the plight of big cats in captivity and the wild.

9. Jacksonville was the original Hollywood. In the early 1900s, the city was the motion-picture capital of the world and had a production industry long before L.A. was a thing. It was known as the “Winter Film Capital of the World.”

Dames Point Bridge, Jacksonville, FL

Dames Point Bridge, Jacksonville, FL

10. The Dames Point Bridge, when constructed in 1989, was the longest cable-stayed concrete bridge in the world. It’s still the second-longest in the Western Hemisphere.

11. In 1910, Jacksonville became the first place where “The Blues” were officially performed. A performance given at LaVilla was dubbed with the term and it stuck.

12. Speaking of Blues, the Springing the Blues Festival in Jacksonville Beach is one of the largest and longest-running blues fests in the country.

13. Jacksonville isn’t just the birthplace of the Blues — the city also holds claim to the name Birthplace of Southern Rock.

14. A few big-name bands got their start in Jax, including Limp Bizkit, Lynyrd Skynyrd, the Allman Brothers Band, .38 Special, Yellowcard and Shinedown.

15. Other celebrities out of Jax include Bob Gandy, Al Denson, Rosalie King-Simpson, Ashley Greene, Lil Duval, Whitney Thompson and Pat Boone, to name a few.

16. Jax is also the birthplace of Don Estridge, the father of the personal computer.

17. In 1964, the Beatles refused to play for their planned Jacksonville audience until organizers desegregated the crowds.

St. Johns River, Jacksonville, FL

St. Johns River, Jacksonville, FL

18. The city is located along the banks of the St. John’s River, both the longest river in the state and one of the very few rivers in the world that flows from south to north.

19. Jacksonville got its name from the seventh president of the United States, Andrew Jackson. He was the first military governor of the state as well.

20. Cowford was Jacksonville’s original name. There were more cows grazing on the banks of the St. John’s River than people in the town at the time.

21. Some of the oldest pottery pieces ever found in the U.S. date back to around 2,500 B.C. and come from Jacksonville. That’s a pretty cool Jacksonville fact.

22. Elvis Presley gave his first indoor concert as a headlining act in Jacksonville’s Florida Theater in 1956.

23. Jacksonville’s Florida Theater was built between 1926 and 1927 and took over one million bricks to complete and was the first time ready-mixed mortar was used in the South. It was also the first major building in downtown Jax to have full air-conditioning installed.

24. The Florida Theater also remains one of only four high-style movie palaces from the ’20s. If you take a walk through it, you’ll notice aspects of the Mediterranean Revival architecture which had a boom in the state during the ’20s.

25. Jacksonville’s founding father, Isaiah David Hart, was a bit of a scamp. He was accused of some cattle thievery (a hangable offense in those days) along the Florida-Georgia line in his early life. He returned to Jax (still called Cowford, of course) later on with some cattle, and then founded the city along the river.

26. The Great Fire of May 3, 1901, considered the third-largest metropolitan fire in American history, lasted about eight hours and began as sparks flew off a mattress factory as piles of moss outside caught fire. The fire claimed seven lives.

27. The worst fire in the history of the city broke out 64 years later. The Roosevelt Hotel fire in 1963 claimed 22 lives.

28. In 1886, Jacksonville experienced a severe earthquake that shook the whole town. It didn’t do serious damage, but the disturbance lasted 11 minutes, with more tremors occurring for another almost two months. This was the same earthquake that shook Charleston which destroyed hundreds of buildings and took dozens of lives. The same earthquake was felt as far west as Chicago and as far north as Boston.

Jacksonville Zoo, Jacksonville, FL

Jacksonville Zoo, Jacksonville, FL

29. In the early 1900s, the city’s largest tourist attraction was an ostrich farm was located along the Southbank. Sadly, the farm closed in 1937.

30. Prior to colonization, the Timucuan people inhabited Jacksonville. They thrived on the land until the colonists came and exposed them to countless diseases, reducing their numbers by more than two-thirds by 1595.

31. The city does occasionally get snow. There are loads of photos of folks sledding down hills in 1989, for example, enjoying the wonder of the powdery white stuff.

32. Bessie Coleman died while performing in an air show in Jax. She was the first female pilot of African-American descent and the first African American to hold an international pilot license. Known as Queen Bess, the pilot performed in an air show when her plane made an unexpected dive. She fell from the plane some 2,000 feet to her death. There is a bronze memorial plaque for Coleman at the front doors of Paxton School for Advanced Studies in Jacksonville.

Treaty Oak, Jacksonville, FL

Treaty Oak, Jacksonville, FL

33. The oldest living thing in Jacksonville is the Treaty Oak. A Southern live oak located in Jessie Ball DuPont Park downtown. Experts estimate the tree is over 250 years old and believed to be the oldest living thing in the city.

34. It might be hard to believe, but Jacksonville has the largest urban park system in the country — yes, out-doing Central Park in New York City by a fair pace. Jacksonville has over 80,000 acres of parks, including two national parks, a national preserve, 400 city parks and gardens, an arboretum and seven state parks. The Timucuan Ecological and Historic Preserve, alone, covers 46,000 of those acres.

35. Jax receives an average of 221 sunny days each year — part of the reason Florida has the nickname the Sunshine state!

36. In Jacksonville alone, the military employs over 30,000 active duty personnel and almost 20,000 civilians, making it the largest employer in Duval county.

Jacksonville beach, Jacksonville, FL

Jacksonville beach, Jacksonville, FL

37. Jacksonville is home to more than 1,100 miles of shoreline! That makes it more abundant here than in any other city in the state. Included in that are 22 miles of white sand beaches.

38. Jax is home to the largest Filipino-American community in Florida.

39. World of Nations Celebration is North Florida’s largest multicultural event and has been taking place in Jacksonville since 1993.

40. Gate River Run is the largest 15K race in the country. Initially, the race, named the Jacksonville River Run, started in 1978.

41. Famously called the “World’s Largest Outdoor Cocktail Party,” Jacksonville hosts the annual college football game between the University of Florida Gators and the Georgia Bulldogs — giving the game neutral turf.

Now you know the best Jacksonville facts

Grab a cocktail, slap on some teal and gold paint and let the world know you’re a real Jaxson with all these Jacksonville facts when you hit up the game.

Source: rent.com

How to Find The Best Renters for Your Apartment Community

Following this step-by-step guide will help ensure you find the best tenants for your rental property.

Finding good renters is something many property owners wonder about, especially if they’re new to owning apartments or other rental property. Choosing the best renters is crucial to your success as a property owner, but it can also be challenging. Finding a tenant requires careful screening and due diligence on your part.

What really makes a great renter? Someone who pays their rent on time each month ensures that you have a steady stream of money coming in. But cash flow isn’t everything. You also want someone who will take care of the property, communicate with you, follow all of the lease provisions and stick around for as long as possible.

The average tenant lives in a rental unit for just over two years. So, creating a streamlined process for advertising your rental and finding, screening and selecting tenants will save you time when a tenant moves out and help you rent the unit to someone else more quickly.

These 11 steps for how to find renters for your apartment community will help.

1. Get familiar with local tenant laws

Landlord-tenant laws vary widely by state and even sometimes by city and county. The laws often specify property requirements and the responsibilities of the property owner. Before you start advertising your rental and looking for tenants, it’s a good idea to familiarize yourself with local rules and regulations.

Additionally, you must follow the federal Fair Housing Act, which protects people from discrimination when renting a home. The law prohibits discrimination in housing based on the following protected classes:

  • Race
  • Color
  • National origin
  • Religion
  • Sex
  • Familial status (for example, people with children or single parents)
  • Disability

2. Consider hiring a property manager

If you’re new to owning rental property, hiring a property manager may be a worthwhile investment. Property managers are experienced in the local real estate market and know how to find renters quickly and effectively. They advertise the property, show it to potential tenants, review applications, screen tenants and get leases signed.

Once a tenant moves in, a property manager will take care of the day-to-day aspects of the rental, including coordinating repairs and answering questions. Property managers typically charge between 5 percent and 10 percent of the monthly rent, according to HomeAdvisor. But it might be worth it if it will save you time and a few headaches.

3. Create a detailed rental ad

Writing a detailed, unique ad for the rental attracts attention and helps find tenants quickly. Make sure your advertisement includes:

  • A description of the property
  • Number of bedrooms and bathrooms
  • Details about property amenities like a pool or playground
  • Rent price
  • The date it is available
  • Your contact information
  • Several accurate, high-quality photos of the home

Be sure that your ad follows all local landlord-tenant laws and the Fair Housing Act. The law prohibits ads that suggest a preference, limitation or discrimination based on race, color, religion, sex, disability, familial status or national origin.

Determining rental price

Determining rental price

4. Price the rental competitively

Deciding how much to charge for rent can be challenging, especially as the real estate market remains in flux. The average rent for an apartment is up about 20 percent over the past year, according to Apartment Guide.

Just because rent prices are going up doesn’t mean you can or should charge exorbitant prices. Pricing the rental property competitively is the best way to find renters. It’s a good idea to check out similar properties in your area and align your rent prices with them.

5. Advertise your property in multiple ways

Placing a “for rent” sign in front of the property is a great way to let passersby know it’s available. But, when it comes to finding renters, it may not capture everyone who’s looking for a home in the area. The truth is most renters start their search online. Advertising a rental online using these channels will broaden your reach:

  • Use your website: If you own several rental properties, set up a website to advertise the available units. Just update it as soon as you know one of your properties will become vacant.
  • Post on social media: Share your rental listing on Facebook, Instagram and Twitter, and ask family and friends to share it, too. You can also post ads for the property in local Facebook groups.
  • Create a listing on Rent.com: Whether you have a rental house, condo or apartment community, posting the listing on Rent.com allows you to reach about 10 million potential renters. The site also enables you to accept applications, screen tenants and take rent payments online.

Other advertising options for how to find renters include placing an ad in a local newspaper or distributing flyers around the neighborhood, such as local grocery stores or libraries.

6. Show the property

When you get calls from your rental ad, be sure to respond promptly and schedule individual showings with anyone interested in seeing the home. Tours allow potential tenants to see the unit in person, ask questions and decide if the place meets their needs.

Showings are also a great time to get a sense of whether the person will be a responsible tenant. Be prepared to openly discuss the rent price (including whether you’ll negotiate the rate), the amount of the security deposits and fees, policies such as whether you allow pets and how you handle repairs and the application and screening process.

Along with individual showings, schedule a couple of open houses that are open to anyone. Open houses will attract a broad group of prospective tenants who can drop by and scope out the property on their own. If they’re interested, they can ask questions about applying to rent the unit.

Professional young woman

Professional young woman

7. Sell yourself as much as the rental

Renters are, of course, looking for a nice place to call home. But they also want to rent from someone who’s respectful and professional. When you meet potential tenants for the first time, it’s your time to shine. Respond to calls or emails promptly, be on time for meetings, behave in a friendly and professional manner and be upfront about the property, rent and the process for screening tenants.

The goal should be to establish a long-term relationship with renters. Following through on any promises and treating renters with respect is a chance to solidify that bond. Once they move in, always respond timely to requests, make repairs when needed, listen to their concerns and generally keep the lines of communication open. Keeping renters happy will likely encourage them to live in the home longer.

8. Take rental applications

Create a standard rental application with the same questions and requirements to use with all potential renters. A standard application ensures you’re treating all applicants equally and complying with state, local and federal housing laws. Applications typically ask for someone’s contact details, proof of income, emergency contact, references, rental history, pet information and a photo ID. Charging an application fee of $20 to $50 covers the cost of processing the applications and conducting background checks.

If more than one person plans to move into the rental, consider having everyone apply separately, especially if they’ll be paying rent separately. One renter can apply and still have a roommate, however. They just need to specify that in their application and the situation must comply with rental property laws.

Once you receive an application, date it and note the time it was received. Then, do a quick review, just to make sure the applicant answered all of the questions and provided the required information. If anything is missing, ask them to submit those items. When you get multiple applications for the same property, create a spreadsheet to help you track each one and decide which renter is most qualified.

9. Screen potential tenants

The application provides all the information you need to screen tenants. There are several types of screenings to conduct to verify that an applicant is qualified to rent the property — just make sure you use the same screening process with everyone:

Check references

Contact previous landlords, employers and personal references to find out about an applicant’s rental history, financial situation and general stability. Ask how the reference knows the applicant (in case they misrepresent friends as employers, for example) and when verifying income, keep in mind some companies have policies against providing details about employees. Ask yes or no questions, like “[Applicant’s name] said she earns $5,000 a month working there. Is that true?”

Do a credit check

Running a credit report will help verify an applicant’s financial history, including whether they pay bills on time, their credit score and past evictions or bankruptcies. Avoid basing everything on credit score alone, however, as people just establishing their credit might have a lower score or someone may have encountered a hefty medical bill.

Run a background check

Criminal conviction information is public and available at local courthouses. You usually just need a person’s birth date and full name to run a background check. But double-check local renter laws to make sure they permit criminal background checks for tenants. For example, some states prohibit property owners from discriminating against tenants with certain types of convictions, but you’re allowed to check sex offender registries.

Review rental history

Try to talk to at least one of an applicant’s previous landlords to find out if they paid rent on time, why they moved, how they maintained the property, whether they caused damage and if they gave notice before moving.

Happy young couple getting keys

Happy young couple getting keys

10. Decide what makes a qualified tenant

Property owners can decide what makes a qualified tenant, as long the qualifications comply with federal, state or local housing laws and avoid discrimination. Set standards for qualifications that you apply to everyone. Here are some examples of what you might require:

  • The renter’s income to be at least three times the monthly rent. Since most renters pay about 30 percent of their income in rent, this ensures they’ll have enough to cover rent each month.
  • A “fair” credit score of at least 600. More importantly, check the individual’s bill payment history and verify employment.
  • Impeccable references from past landlords, showing that the tenant hasn’t been evicted in the past.
  • No past criminal felony convictions, if this is allowed based on your local tenant laws.
  • A tenant may need a co-signer or guarantor if they don’t meet the requirements.

11. Prepare and sign the lease

Never rely on a verbal agreement with a renter. You need a lease that outlines your responsibilities and the tenant’s responsibilities while they’re living in the apartment. The lease should specify who’s responsible for which repairs and maintenance, when rent is due, how rent should be paid, pet policies, roommate policies, how lease renewals are handled and how much notice a renter should give before moving out. The lease protects you and the renter.

After you’ve reviewed applications, screened applicants and decided who meets the qualifications, go over the lease with the prospective tenant to make sure they understand everything. You can also negotiate portions of the lease, such as whether pets are allowed or if certain utilities will be included.

Once the lease is finalized and everyone agrees to its provisions, you and the tenant sign it. You’ll collect the security deposit and pet fees and decide on a move-in date. Be sure to give renters a copy of the signed lease and keep a copy in your records.

How to find renters

Learning how to find the best renters is a critical part of owning a rental property. Tenants that pay on time, communicate effectively and take care of the apartment or house are your best option, and there are several ways to find them. When you find top-notch tenants, you can build lasting relationships that ensure your property generates income and keeps vacancies to a minimum.

The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.

Source: rent.com

Buy the Dip Meaning – Pros and Cons of Stock Purchases After a Market Drop

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The expression “time is money” is true in most senses, but nowhere more so than in the stock market. 

The amount of money you make or lose when you actively trade often depends on your market-timing skills. If you time things right, you’ll buy low and sell high, making a profit. If you time your investments wrong, you’ll buy high and be forced to sell low, reaping losses. 

So, when is the best time to buy? Often, the answer is when a dip takes place. 

What Does “Buy the Dip” Mean?

The equities market is a self-balancing system based on the law of supply and demand. When there are more buyers who want a stock than sellers who want to sell it, its price increases, enticing more sellers to get involved. On the other hand, when there are more sellers than buyers, the price of the stock must fall to get buyers excited. 

In the market, you see quite a few peaks and valleys as the supply and demand equation works to find fair values of equities. 

A dip means that the price of a stock is down, but likely for a short period of time. Buying the dip is a short-term trading strategy that gives day traders the ability to exploit these short-term price drops for a profit. 

Essentially, traders buy stocks at lower prices when dips take place in hopes of turning around and selling their shares shortly after the purchase, when the price of the stock normalizes back to higher levels. The difference between the purchase price and the later sale price becomes the profit (or loss) for the trader. 


Why Are Dips Seen as Buying Opportunities?

“Buy low, sell high.” The expression is the basic premise of investing — the idea that when you buy a stock, your goal is to buy in at a low price and sell when the price increases to make a profit. 

Dip buying is a faster-paced version of doing just that. Many dips usually only last for a portion of a trading session — sometimes only a few minutes — making them perfect opportunities for quick profits from day trading. 

When a dip happens, investors who buy in enjoy a discount to the general price the stock should be trading for. It’s like finding a coupon for a product you wanted to buy anyway. And while coupons limit the amount of the product you can buy using the offer, when you find a discounted stock, you can buy as many shares as you’d like and enjoy the discount. 


Pros & Cons of Buying the Dip

At first glance, buying the dip seems like a great way to go for any investor, but you should never judge a book by its cover. As with any other investment strategy, there are potential upsides and potential downsides to consider. Here are some of the most significant pros and cons to think about before diving into dips in the market.

Pros of Buying the Dip 

Buying the dip has become a popular idea for several good reasons. Some of the most exciting benefits to taking part in the strategy include:

1. High Potential Profitability

Long-term investors don’t tend to worry about peaks and valleys in the market. Instead, they buy equities they intend to hold for a while, no matter the short-term ebbs and flows seen in its price. 

However, technical analysis pros who have the ability to time dips in the market have the potential to beat the returns of long-term investors by wide margins. After all, if you can get in at a discount, you stand to make compelling gains when the uptrend in the value of the stock commences. 

2. Dips Happen All the Time

Dips happen regardless of whether Wall Street is in the midst of a bull market or bear market. While the market is seen as a balanced system, it’s actually a constant battle between the bulls and the bears that’s always using supply and demand to work out inefficiencies. 

As a result, short-lived peaks and valleys are far more common than most newcomers to the investing community think. That means there are always opportunities somewhere.

3. Excitement

There’s a bit of excitement that comes along with a discount. After all, you work hard for your money, and if you can spend less than you expected, the transaction is going to make you feel good. The same is true whether you’re buying a new pair of jeans or shares of Apple stock. 

Cons of Buying the Dip 

At this point, you’re probably pretty excited about trying your hand at dip buying, but don’t let the allure of big profits fool you — it’s not all sunshine and rainbows. Before you decide to take part in the strategy, consider the following pitfalls:

1. Volatility

The market is filled with volatile price movements, and even pros at technical analysis get it wrong from time to time. Attempting to make a quick profit in just about any space can end in a headache, and the market is no different. 

Finding the right time to jump into a stock that’s experiencing volatility is a challenge for even the most experienced traders. Beginners hoping to score a quick profit just because a stock’s price is down could be in for a bumpy ride. 

2. History Isn’t Always an Indicator of the Future

It’s a widespread saying that history repeats itself, but it’s not always true, especially when you’re talking about the market. 

The idea of buying the dip is based on the premise that a stock’s past performance is indicative of what you can expect in the future, but that’s not always the case either. 

Unfortunately, this false premise is why even the best of the best traders often make losing trades. When a dip appears, you may think it’s a good time to buy, but there’s no telling when or if the dip will correct itself. Sometimes a stock’s price goes down and stays down — or goes even lower.

3. There Could Be a Reason for the Dip

Unwarranted declines are commonplace in the market, but that doesn’t mean every dip you see is unwarranted. Sometimes, there are serious underlying issues in the business represented by the stock that causes investors to abandon ship, leading to a dip on the chart. 

Unfortunately, with buying the dip being such a fast-paced process, traders don’t always have the time to do adequate fundamental research before executing their trades. Instead, they may dive in on stocks that have fallen due to issues that aren’t likely to resolve themselves in the near term, leading to losses. 


Who Should Buy the Dip?

Buying dips in the market may seem like an exciting way to turn a profit, but most investors shouldn’t be chasing fast-paced gains in the market. For the right trader, though, buying the dip can be a good trading strategy. You may be a prime candidate for buying dips if:

1. You Are Risk-Tolerant

As mentioned above, there are significant risks that come with attempting to make meaningful profits in the market over a short period of time. The prime candidate for the strategy would be someone who isn’t afraid to lose a few bucks here and there in search of the treasure trove. 

2. You’re Skilled in Technical Analysis

Technical analysis is the process of analyzing trends in a stock chart to determine where the value of a stock is likely headed. Swing traders use indicators like support and resistance to create a theoretical range in which the value of the stock should stay, and they take advantage of various other indicators to tell them where in this range the stock is and the direction it’s likely headed next. 

The best candidate for this strategy is one who has a deep understanding of technical analysis and is able to use it to make fast-paced decisions in the market. 

3. You Don’t Care About Income From Investing

Because buying the dip is a fast-paced process, investors and traders who take advantage of the strategy will rarely hold a stock long enough to collect dividends. If you’re a long-term investor who depends on income from your investments, this strategy simply won’t fit the bill. 


Take Part in Dollar-Cost Averaging When Buying a Dip

When using the buy-the-dip investment strategy, one of the best ways to protect yourself from significant losses is to employ dollar-cost averaging. 

The reality is that when you buy a dip, you’re buying a stock that’s trending downward, and there’s no 100% accurate way to tell where the bottom is. As a result, if you’re making a large purchase into a dip, it’s best to spread your purchase over time by making multiple smaller purchases. 

For example, say you notice a stock is on a downtrend and you believe the trend will last no more than a couple of trading sessions. Instead of buying 100 shares of the stock right now, you might decide that you’ll buy five blocks of 20 shares, with each purchase taking place an hour apart. 

In doing so, if the price of the stock continues to fall after the first purchase, the later purchases at lower prices bring the average price you pay for all the shares down, increasing your overall earnings potential when the dip subsides and the stock makes its way back up. 


Can Long-Term Investors Benefit From Buying the Dip?

While most dips in the market tend to be incredibly short term, making them best for traders rather than long-term investors, there are some instances when long-term focused investors can benefit from buying the dip and using dollar-cost averaging in the process. 

One of the best recent examples of this was during the coronavirus pandemic. When the pandemic set in, the overall market experienced painful declines as the global economy took a major hit. During this time, countless individual stocks quickly became undervalued. 

The declines during the pandemic started in late February and found the bottom by late March. Even long-term investors who weren’t trading stocks daily had time to put extra money to work in the market. After the month-long market bloodbath, stocks began to recover. Investors with a long-term outlook who took the opportunity to buy new shares as prices were falling started to benefit greatly. 

So, while the buy-the-dip concept is generally seen as a trading strategy, in some cases, it makes for a great investing strategy as well. 


Final Word

Buying the dip is an exciting concept. After all, who doesn’t want a discount on a product they’re purchasing, be it a toy for their kids or a share of stock? 

However, the concept can also be dangerous. After all, when stocks fall, there are often reasons for the declines, and the dips seen in the stock chart could become long-term headaches. 

Nonetheless, with a little research, you’ll be able to tell whether there’s a serious reason for the declines or if the dip is likely to be short lived. So, when taking advantage of the buy-the-dip strategy, as is the case when making any other investment decision, it’s important to do your research and get an understanding of what you’re buying before you make the purchase. 

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Source: moneycrashers.com

5 Mega-Cap Stocks Analysts Love the Most

In a year when high-flying meme stocks have grabbed more than their fair share of headlines, investors would do well to remember that what really moves the market are mega-cap stocks.

After all, the S&P 500 is not a social media popularity contest. It’s an index weighted by market capitalization. Size matters. The biggest companies by market value – Apple (AAPL), Microsoft (MSFT) – have far more impact on our collective equity wealth than whatever stock du jour is being debated on Reddit.

Mega-cap stocks – or roughly speaking, equities with market values of at least $200 billion – are where the really big money places its bets. Billionaires, hedge funds and other institutional investors love mega-cap stocks. For one thing, mega caps are proven businesses, and leaders in their respective industries. Secondly, mega caps’ massive liquidity allows big investors to buy or sell large positions with relative ease.

Mega caps also happen to be some of the country’s best-known companies – and analysts’ favorite stocks.

With that in mind, we decided to find Wall Street’s favorite mega-cap stocks to buy now. Here’s how the process works: S&P Global Market Intelligence surveys analysts’ stock ratings and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell. Any score of 2.5 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call.

Our screen left us with these five mega-cap stocks, all of which get rare Strong Buy consensus recommendations.

Share prices and other data are as of Nov. 4, courtesy of S&P Global Market Intelligence and YCharts. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Companies are listed by strength of analysts’ consensus recommendation, from lowest to highest. 

1 of 5

5. Thermo Fisher Scientific

Scientists perform experimentsScientists perform experiments
  • Market value: $251.7 billion
  • Dividend yield: 0.2%
  • Analysts’ consensus recommendation: 1.50 (Strong Buy)

Thermo Fisher Scientific (TMO, $639.76) is often called the “Amazon of the healthcare industry” because of the mega-cap stock’s wide-ranging portfolio of life sciences products, analytics instruments and laboratory tools.

As such, Thermo Fisher has been highly active in the fight against COVID-19, which in turn has raised its profile and investor interest. Indeed, TMO stock is up about 37% for the year-to-date. That leads the S&P 500 by about 12 percentage points. 

But there’s more to TMO beyond the boost it’s getting from the fight against COVID-19, bulls note. 

“The company is investing its substantial cash flow in product development, capacity expansions and acquisitions,” writes Argus Research analyst David Toung, who rates shares at Buy. “We believe that these investments, along with strength in the base business (excluding COVID-19 testing revenue), will drive growth on the other side of the pandemic.”

Of the 22 analysts issuing opinions on the stock, 15 rate TMO at Strong Buy, four say Buy, two rate it at Hold and one calls it a Sell, according to S&P Global Market Intelligence. They expect the company to generate average annual earnings per share (EPS) growth of 13.1% over the next three to five years.

2 of 5

4. Salesforce.com

A Salesforce signA Salesforce sign
  • Market value: $301.6 billion
  • Dividend yield: N/A
  • Analysts’ consensus recommendation: 1.49 (Strong Buy)

The Street adores Salesforce.com (CRM, $308.04). The software-as-a-service juggernaut is also one of the hedge fund industry’s favorite stocks, and it’s beloved by billionaire investors too. 

Shares in the Dow stock are up more than 38% year-to-date, and the Street says they’ve still got plenty of upside left.

After all, Salesforce, which provides customer relationship management software to enterprise customers, was essentially providing cloud-based services before they were cool. That early-mover advantage continues to benefit CRM today. 

Deutsche Bank analyst Brad Zelnick initiated coverage of the company at Buy in November. Among other points, the analyst calls out the market’s failure to properly value CRM’s 2020 acquisition of communications platform Slack. 

“Even with sentiment recovering since announcing the $28 billion Slack deal last year, we believe the market under-appreciates the long-term opportunity in front office applications, Salesforce’s leadership of the category, and the scale at which it is succeeding,” Zelnick writes. 

The analyst is hardly a lone voice in the wilderness. Thirty-two analysts rate CRM at Strong Buy, 10 call it a Buy and seven have it at Hold. They forecast the mega-cap stock to deliver average annual EPS growth of 23.3% over the next three to five years.

3 of 5

3. Alphabet

A Google building signA Google building sign
  • Market value: $1.97 trillion
  • Dividend yield: N/A
  • Analysts’ consensus recommendation: 1.35 (Strong Buy)

Google parent Alphabet (GOOGL, $2,973.66) is another mega-cap stock that hedge funds, billionaires and Wall Street analysts lavish with praise. 

That’s due in large part to the company’s domination in search and other web services. At its foundation, Google forms a duopoly with Facebook parent Meta (FB) in the relentlessly growing market for digital advertising. Combined, the two companies will claim roughly 54% of all global digital ad revenue in 2021, according to eMarketer.

“These companies [also including Apple, Microsoft and Amazon.com] have come to dominate new developments in mobile, public cloud and big data analytics, as well as emerging areas such as artificial intelligence, virtual/augmented reality and even quantum computing” says Argus Research analyst Joseph Bonner (Buy).

Importantly, Alphabet’s multiple areas of interest belie criticisms that it’s “a ‘Johnny One Note’ for its dependence on digital advertising,” the analyst adds. 

Alphabet’s earnings power is all the more impressive given how massive the company has become. GOOGL is knocking on the door of $2 trillion in market value, and the Street still believes it can generate average annual EPS growth of 22% over the next three to five years.

As such, it’s really no surprise that of the 46 analysts issuing opinions on GOOGL tracked by S&P Global Market Intelligence, 31 rate it at Strong Buy and 14 call it a Buy, while a mere one pro says Hold.

4 of 5

2. Microsoft

MSFTMSFT
  • Market value: $2.53 trillion
  • Dividend yield: 0.7%
  • Analysts’ consensus recommendation: 1.34 (Strong Buy)

Only two of the Dow Jones Industrial Average’s 30 stocks currently earn a consensus Strong Buy recommendation from Wall Street analysts: the aforementioned Salesforce.com, and mega-cap stock Microsoft (MSFT, $336.44).

But MSFT outpaces CRM in this little race in a big way: Of the 41 analysts issuing opinions on Microsoft tracked by S&P Global Market Intelligence, 29 rate it at Strong Buy, 10 say Buy and two call it a Hold. 

The key to the overwhelmingly bullish view on MSFT stock is Microsoft’s overwhelming success in cloud services with products such as Azure and Office 365.

“With workforces expected to have a heavy remote focus, we believe the cloud shift is just beginning to take its next stage of growth globally,” says Wedbush analyst Daniel Ives (Outperform). “We believe this disproportionately benefits cloud stalwart MSFT, as it is so well-positioned in its core enterprise backyard to further deploy its Azure/Office 365 as the cloud backbone and artery.”

As with Alphabet, the law of large numbers doesn’t seem to apply to MSFT. Consider that Microsoft boasts a market value in excess of $2.5 trillion, yet analysts still expect average annual EPS growth of 15.4% over the next three to five years.

5 of 5

1. Amazon.com

Amazon sign outside HQAmazon sign outside HQ
  • Market value: $1.76 trillion
  • Dividend yield: N/A
  • Analysts’ consensus recommendation: 1.27 (Strong Buy)

Analysts’ hands-down favorite mega-cap stock is Amazon.com (AMZN, $3,477.00).

True, the company coughed up some disappointing third-quarter results. AMZN’s earnings and revenue missed Street estimates, and it issued downbeat guidance to boot.

But while the market might not be too hot on AMZN right now, analysts could not be more bullish. After all, how many $1.76 trillion companies are forecast to deliver average annual EPS growth of almost 27% over the next three to five years?

True, COVID-19, supply-chain snafus, rising labor and input costs and other headwinds are serious near-term challenges for Amazon, analysts say. However, the long-term bull case remains intact and it’s simply too compelling to ignore.

“Amazon.com is one of the few large-cap companies benefiting from the secular shift to e-commerce,” writes Oppenheimer analyst Jason Helfstein, who rates AMZN at Outperform (Buy). “The company continues to gain share of global e-commerce with its deep product selection, low-cost express delivery through its Prime program, and breakthrough success of Kindle, Prime Video and Amazon Music. Furthermore, AMZN’s Web Services segment is now the global leader in cloud computing and has significant value.”

Oppenheimer’s view isn’t just the majority opinion on the Street. It’s the only opinion on the Street. Thirty-six analysts rate AMZN at Strong Buy and 13 say Buy. No Holds, no Sells. 

Source: kiplinger.com

Dogs of the Dow Investment Strategy – Historical Performance, Pros and Cons

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Contrarian investment strategies are some of the most interesting ways to build wealth in the stock market. The idea is to go against the grain — making moves the average investor wouldn’t even consider — in an attempt to capture the larger gains nobody seems to be looking for. 

One of the most popular of these strategies is known as the Dogs of the Dow. 

As its name suggests, the strategy is centered around making investments in stocks listed on the Dow Jones Industrial Average (DJIA), also known as the Dow 30. But how exactly is investing in blue-chip companies listed on one of the most recognized stock market indexes a contrarian strategy? And what exactly are the “dogs” the strategy refers to?

What Is the Dogs of the Dow Investment Strategy?

The strategy was designed as a way to go about beating the Dow by investing in only 10 thoughtfully chosen components of the index. In particular, those following the investing strategy focus only on the 10 highest dividend yielding stocks on the index. 

The concept of investing in the blue-chip stocks on the Dow with the highest dividend yield isn’t anything new to Wall Street, as the practice has been taking place for decades. The Dogs of the Dow was first popularized in a 1991 book titled “Beating the Dow” by Michael B. O’Higgins. 

Importantly, the Dogs, or highest yielding stocks on the Dow Jones Industrial Average, are chosen at the beginning of the year, on the first trading session. These stocks will be known as the Dogs of the year on Wall Street until the end of the year at the very minimum, regardless of whether circumstances change mid-year and other stocks on the index begin to offer higher yields. 

The Investment Thesis Behind the Strategy

There are multiple parts to the investment thesis behind this strategy. By the nature of the index, all Dow stocks are blue-chip investments. Not only are these some of the largest companies in the United States, they tend to be some of the most stable. As a result, the strategy comes with a decent level of built-in safety. 

So, where does the contrarian nature of the strategy come in?

Large, well-established companies don’t tend to alter their dividend payouts, regardless of the current business cycle. That means that when times are slow and the stock is down, the dividend yield will go up, because payouts haven’t changed while the stock price has decreased. 

When it comes to Dow components, a high dividend yield suggests low stock prices, and most investors tend to veer away from companies that are going through a rough patch. However, there’s a good reason investors follow this strategy anyway, investing in the Dow Jones-listed companies that most people who pick individual stocks are least likely to consider. 

These companies have low valuations, making the strategy of investing in these “Dogs” a value-oriented strategy. Keep in mind, all 30 of the stocks listed on the index represent stable companies that have proven their ability to withstand headwinds and pick themselves up after they’ve fallen. 

At the same time, the Dogs are likely experiencing headwinds at the time they’re chosen, meaning they’re likely highly undervalued. Once the concerns pass, these stocks are more likely than not to make a full recovery, meaning that they offer access to significant growth potential.  


How Has the Dogs of the Dow Strategy Performed Historically?

Throughout history, the Dogs have beat the overall Dow quite often. Here’s a quick comparison between the two from 2010 through 2020:

Year DJIA Overall Dogs of the Dow Winner

2010 9% Gain 16% Gain Dogs

2011 5.5% Gain 6.7% Gain Dogs

2012 10% Gain 10% Gain Tie

2013 30% Gain 35% Gain Dogs

2014 10% Gain 11% Gain Dogs

2015 0% Gain 3% Gain Dogs

2016 17% Gain 20% Gain Dogs

2017 25% Gain 19% Gain Dow

2018 6% Loss 1.5% Loss Dogs

2019 22.3% Gain 15.4% Gain Dow

2020 7.2% Gain 12.6% Loss Dow

As you can see, the Dogs have produced a much better long-term total return than the Dow Jones Industrial Average, winning far more than losing. However, on a year-by-year basis, there are some years that the Dow will outpace the Dogs. 

This is especially true in years when companies already dealing with headwinds face macroeconomic issues, as was the case in 2020 as the COVID-19 pandemic set in. Economic shocks like that are more likely to further impact companies that are already facing challenges.


Current Dogs of the Dow

The chart below shows the current Dogs of the Dow, their dividend yields. 

Company Name (Ticker Symbol) Dividend Yield
Chevron (CVX) 5.48%
International Business Machines (IBM) 4.69%
Dow (DOW) 4.43%
Walgreens Boots Alliance (WBA) 3.95%
Verizon (VZ) 4.56%
3M (MMM) 3.04%
Cisco Systems (CSCO) 2.49%
Merck & Co. (MRK) 3.35%
Amgen (AMGN) 3.14%
Coca-Cola (KO) 3.00%

Pros & Cons of the Dogs of the Dow Strategy

As with any investment strategy, there are some pros and cons you should consider before diving into an investment using the Dogs of the Dow strategy. Here are the most significant.

Dogs of the Dow Pros

The strategy has become a staple among contrarian investors, so it only makes sense that it has plenty of perks.

1. Limited Drawdown Risk

While the strategy is focused on investing in what many perceive to be the weakest stocks on the Dow, all 30 stocks on the index are relatively stable plays because they represent large industry leaders. As a result, the strategy comes with less drawdown risk than strategies that focus on investing in more volatile stocks. 

2. Potential to Beat the Market

Historically, there have been some years when the Dow and S&P 500 have beaten the Dogs, but there have been far more years in which the Dogs outperformed the overall market. Since investing is all about making money, a strategy with the ability to expand your earnings compared to the overall market is always compelling. 

3. Simplicity

Some investment strategies are difficult to carry out, but this isn’t one of them. The stocks you’ll be invested in are all chosen for you, and rebalancing is only necessary on an annual basis, making this one of the easiest strategies to follow. 

4. Strong Income

Almost all the components of the Dow pay dividends, but focusing on this strategy means your investments will be centered around those with the highest dividend yields, making it a great choice for investors looking for income.

5. Inexpensive

Finally, the strategy is centered around investing in a handful of individual stocks rather than potentially expensive mutual funds. Plus your transaction costs should be minimal because you’ll only be making trades once per year. 

As a result, this strategy is one of the lowest-cost ways to go about investing. 

Dogs of the Dow Cons

Sure, there are plenty of reasons to be excited about following this strategy, but every strategy comes with a downside or two. Here are the most important reasons why some investors choose to avoid investing in the Dogs. 

1. Losses Can Happen

In the stock market, sometimes losses are unavoidable. Even the most seasoned expert investor will lose money from time to time, as will the most stable, reliable company. 

Because every stock purchased using this strategy is a blue chip company, many investors dive in expecting there to be no chance of losses, but that’s a false assumption. Stocks of some companies — even large companies — may decline for good reasons. 

Investing in stocks that are already underperforming carries the risk that they continue to fall, especially if something fundamental at the company has changed. A sudden shift in the economic tides can spook investors away from these companies even more than the Dow’s strongest performers. 

2. Sticking to the Strategy Might Be Tough

When the strategy is producing gains, sticking to it won’t be hard at all. However, when declines happen, it may be difficult to overcome the fear of loss and stick with the Dogs. 

If you decide to move forward with the strategy, it’s important that you’re willing to stick it out through the tough times. You must prepare yourself to avoid emotional investing if the market starts to turn sour.


Steps to Setting Up a Dogs of the Dow Portfolio

As alluded to above, the Dogs of the Dow is a very simple strategy to follow. All you need to do is follow the steps below:

1. Look Up the Dogs

First, you’ll need to know exactly what stocks are included in the strategy. Keep in mind that a new list of Dogs will come out every year based on the dividend yields on the first trading day of the year. So, many investors wait until the first session of the year to start the strategy.  To find the current Dogs, simply look for “Current Dogs of the Dow” in your favorite search engine.

2. Buy the Dogs

Now that you know what stocks represent the Dogs, it’s time to make your purchases through your brokerage account. 

If you’re following the strategy to the letter, you’ll apply an equal 10% allocation to each stock. Some investors may adjust allocation to each stock depending on various factors, such as valuation metrics. But if you’re not an experienced investor, it’s best to stick with the equal 10% allocation. 

3. Adjust Your Portfolio Annually

When following this strategy, it’s important to hold your investments for a year at a time. On the first day of the new year, you’ll sell all shares, investing in the new list of Dogs on the first trading session of the new year. 

There’s an important tax consideration to think about here. Investments that are held for one year or less are taxed at a higher rate than those held for longer than one year. You could benefit substantially from waiting an extra day before adjusting your portfolio. This way, you’ll hold your investments for one year and one day, satisfying the long-term capital gains tax requirements and qualifying for a lower tax rate on all your gains for the year. 


Common Questions About the Strategy

There’s no such thing as an investment strategy investors won’t have questions about. When it comes to this strategy, the most common questions investors have include:

Are 10 Stocks Enough for Diversification Purposes?

Diversification is the act of making sure you don’t invest all your money into too few stocks. Instead, by spreading your investments out across several different stocks, you’ll be protected if one or more of those stocks takes a sudden dive. The gains across the rest of your portfolio will act as a safety net. 

One of the most commonly followed diversification strategies is the 5% rule, which suggests investors should never invest more than 5% of their total portfolio value into any single investment. 

On the other hand, the Dogs of the Dow strategy suggests that you invest 10% of your portfolio into each of the Dogs. So, which is right?

The importance of diversification is a long-debated topic, with experts on both sides of the argument — albeit far more of them land on the “diversification is important” side. 

Limiting your investments to 10 stocks is a dangerous concept, but the fact that these stocks are all stable, blue-chip players  leading in their industries builds some safety into the foundation of the strategy. As a result, the general consensus is that the Dogs of the Dow strategy is a relatively safe one. 

Some investors still aren’t comfortable with how light the diversification is in this strategy. If you’d like further protection, simply invest 5% of your portfolio’s value in each of the Dogs, representing 50% of your portfolio’s value. The remainder can be invested in heavily diversified mutual funds or exchange-traded funds (ETFs) to offset risk. 

Is Annual Rebalancing Enough?

The annual rebalancing of the Dogs of the Dow portfolio is another matter in which the strategy goes against the grain. Some investors rebalance their portfolios weekly or monthly, but almost all advisors and investment strategists advise to rebalance at least quarterly. 

So, why does this strategy only call for annual rebalancing? Well, because in this strategy, it works. 

This strategy is not based on diversification, instead focusing on a handful of stocks that are strong, stable investments. There is no use of bonds or other fixed-income securities that might merit regular rebalancing. 

Moreover, the stocks are all Dogs, offering high yields and low prices relative to their Dow Jones-listed counterparts. The general theory is that when you invest in the downtrodden stocks that have high yields largely because of price depreciation, the undervaluations will work themselves out over time, typically within a year. If you exit your positions in a shorter amount of time, you may miss out on the recoveries these stocks are expected to make. 

Are There Any Dogs of the Dow ETFs?

Some investors would rather invest in exchange-traded funds (ETFs) than individual stocks for two key reasons. First and foremost, these funds take the guesswork out of investing, with managers that invest your money for you based on the fund’s prospectus. They are also known to be one of the lowest cost ways to go about making money in the stock market. 

There are quite a few ETFs that follow the Dogs of the Dow strategy or variations on the same theme. Some of the most popular are Elements ETN-Dow Jones High Yield Select 10 Total Return Index (OTC: DODXF), Invesco Dow Jones Industrial Average Dividend ETF (DJD), and ALPS Sector Dividend Dogs ETF (SDOG). Technically the ALPS funds tracks to “Dogs” of the S&P 500 instead of the Dow, but it follows the same idea.

Do I Have to Wait Until the Beginning of the Year to Start?

You don’t have to wait until the beginning of the year to start using this strategy, but if you start in the middle of the year don’t, your “Dogs” will be different from what the general public calls the Dogs of the Dow. That’s because the highest yielding stocks on the first trading day of the year will be different from the highest yielding stocks in the middle of the year when you start trading. 

Regardless of when you start, you’ll want to invest in the highest yielding stocks on the Dow Jones at that time. The point is to make investments in solid stocks that are underperforming their Dow-listed counterparts in the short term. The goal is to hold the investments long enough for these stocks to recover. 

A crucial piece of this strategy is that the investments are held for one year, and for good reason. If you don’t hold onto them long enough, you may miss out on strong returns. Plus, holding your investments for less than one year means having to pay short-term capital gains taxes on any profits you realize. 

So, no, you don’t have to wait until the end of the year to invest in the Dogs of the Dow, but if you start in the middle of the year, make a note of the day you start and make sure to adjust your portfolio annually. 


Final Word

The Dogs of the Dow is an interesting strategy, centered around a contrarian opinion that stocks with strong fundamentals that are undervalued for one reason or another offer the best opportunities for reliable growth that outpaces the overall market. 

The strategy is incredibly similar to that of Warren Buffett, the famous contrarian investor who amassed a fortune investing in downtrodden stocks. 

While there are some downsides to taking an approach that goes against the grain on Wall Street, historically, the Dogs of the Dow has outpaced the returns of the overall market by a wide margin, making it a compelling investment strategy for many investors. 

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Source: moneycrashers.com