How To Invest In An Era Of Lies

money and investingNilus Mattive: As investors, we need good information to make sound decisions. And yet there are very few trustworthy data sources these days.

Just consider recent news that the Securities and Exchange Commission sued my own home state’s capital — Harrisburg, Pa. — for fraud.

According to the SEC, state officials misled investors about the city’s financial health in their 2009 budget report and various other financial statements, as well as in a “state of the city” address.

Now, Harrisburg has been struggling with financial problems for more than a decade. So, it’s not like investors were completely unaware of possible problems rumbling under the surface.

But many market participants were still surprised when the city attempted to file for bankruptcy back in 2011. I say “attempted” because a federal judge later decided that Pennsylvania state law prohibited the city from doing so.

And in the end, thousands of municipal bond investors — including many mom-and-pop retirees — have been left holding the bag on a city that is both under state receivership and trapped under the weight of about $300 million in debt.

But the Harrisburg Fiasco is Small Potatoes Compared to
Some of the Stuff Coming Out of Washington, D.C.!

No, I’m not talking the recent revelation that IRS employees targeted specific groups that were outspoken critics of the agency … as disturbing as that news is.

Even scandals like that pale in comparison to some of the things Washington is doing (and saying) to everyday American savers and investors right now.

Take our government’s official inflation measure, the Consumer Price Index (CPI).

This yardstick affects everything from tax rates to Social Security cost-of-living increases. Yet it:

  • Fails to account for price changes to some of the items Americans rely on the most.
  • Doesn’t factor in the effect of federal, state or local taxes.
  • And relies on all kinds of faulty logic like the idea that technological improvements automatically offset rising prices for certain things we purchase.

Worse yet, the new version of “chained CPI” that Washington wants to start using actually AMPLIFIES some of these inaccuracies!

Meanwhile, look at our nation’s Social Security program …

Although the system is now taking in less than it pays out, lawmakers continue acting like everything is totally fine. In doing so, they’re misleading millions of Americans who are counting on those payments in retirement.

And I still haven’t even talked about the Federal Reserve’s artificially low interest-rate policies.

The direct result of Ben Bernanke’s approach is that CDs, money-market accounts, and other regular savings vehicles are now producing nothing in the way of income for people who depend on these investments to live.

So What CAN Investors Count On These Days?

Ten years ago, everyone was scared of investing in the next Enron. But today, plenty of people I talk to are afraid of investing in ANYTHING.

Based on all the lies and deceptions out there these days, I can understand why!

However, I have a simple suggestion: If you want to invest with confidence, just stick to the old adage that “money talks.”

In other words, if an investing strategy doesn’t stand a very good chance of paying you back consistently — and in short order! — avoid it.

Take the example of lying corporate executives. Sure, it’s easy for them to manipulate earnings figures, sales numbers and other accounting measures.

But the same is not true of dividend payments.

You can’t fake a dividend — the check either clears or it doesn’t.

So when a company has been paying bigger and bigger dividends for many years, that’s a pretty good indicator that it’s not cooking the books.

The same is true of real estate and many natural-resource investments — they represent stakes in tangible assets, and many times they also spin off steady payments for their owners.

Plus, a happy coincidence of focusing on income-producing strategies is that, by creating new streams of cash, you are actually offsetting things like inflation, declining Social Security payments, and low interest rates.

So even if you don’t want to select individual dividend stocks, at least consider owning income investments through a fund like the SPDR S&P Dividend ETF (NYSEARCA:SDY). Having some extra cash flowing into your portfolio on a regular basis will help give you a healthy, protected nest egg that’s there for you when you need it most.

Best wishes,

Nilus MattiveWritten By Nilus Mattive From Money And Markets

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

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