|Guard your portfolio against inflation
Don Schreiber, president and CEO of Wealth Builders
Inc., in Little Silver, N.J., and co-author of the book "All About
Dividend Investing," touts dividend-paying stocks as a good way
to keep pace with or beat inflation.
"CDs, money markets and bonds have never kept pace
with inflation after taxes. You buy a 5-percent CD, pay taxes, and
you're probably left with less than the 3.5 percent inflation rate
on a net basis after taxes. Those investments have a principal guarantee
but the investor gets poorer every day because they're losing purchasing
"You have to have something that fights inflation. Companies tend to increase dividends over time. That safe, reliable check you get is actually rising. In addition, you expect that the share price of the stock will appreciate. That's not always true with growth stocks. They reinvest all earnings to get additional growth and they lose the rising income; you're depending on just price appreciation."
It takes a bit of research to determine which dividend-paying stocks are the best to buy. You don't want to pick a stock simply because it has a high-yielding dividend. Make sure the company has plenty of money to operate, pay bills and keep paying the dividend, plus increase it as the years go by.
If you're not up to the challenge of analyzing a balance
sheet, you might want to investigate mutual funds that focus on
companies that pay dividends. Your return won't be the same as with
owning individual stocks because of fees and the like, but a good
fund may keep your head above the inflation waters.