The politico who uttered “never let a good crisis go to waste” might have been onto something.
This is not to sound insensitive to Ukraine and all victims, but without an impending U.S. recession, credit crunch, dividend cuts or an explosion of bad debt, there is little reason for portfolio pessimism. Unless you invested in a Russian-themed exchange-traded fund or maybe an emerging markets index fund, the destruction of Moscow’s capital markets is a sideshow.
True, there are other perils. Oil and grain prices are spiking, but the United States is the top producer of oil, as well as many of the commodities that Russia may no longer export widely. The dollar gains global trust and value with each new act of aggression. Inflation is hard and may get worse, but there are ways to shore up your investments.
On the plus side, the war and oil shock ease fears that the Federal Reserve might strangle growth by tightening credit too much. U.S. long-term interest rates are not rising much more than they already have. So, while your bonds and bond funds are down early in 2022, they are priced to do no worse than break even now.
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I would channel voices like that of Baird Funds’ Bull and Baird blogger Michael Antonelli, who says “the lessons of financial history are that the worst-case scenario has a funny habit of not occurring.”
Below are some timely elements of an income portfolio to consider:
Energy. Oil and gas will be high and tight for a while. In Kiplinger’s Investing for Income, I have said to maintain exposure via pipelines and refiners, even when crude plunges. What matters is that demand is high. Anything for which cash flow and distributions depend on volume, as with Kinder Morgan (Symbol KMI), Magellan Midstream Partners (MMP) or MPLX, should be a comfort.
Rents. Although apartment rents are soaring, so are jobs and incomes — and yet the average apartment real estate investment trust is down around 10% off its high and a hair below net asset value. Keep these REITs or buy on dips oft-overlooked names such as Apartment Income (AIRC) or Centerspace (CSR).
Municipals. No category is further removed from world turmoil. And rising inflation drives up property values and incomes that feed into state and local coffers. Upgrades are likely, and the tax exemption is as valuable as ever. Baird Strategic (BSNSX) is having a fine year. Note that municipals as a class have lost money in only three calendar years since 1983.
Dividend stocks. Hikes that dwarf inflation are common of late: UPS boosted its payout 50%; Hewlett-Packard, 29%; Best Buy, 26%; Whirlpool, 25%; Eli Lilly, 15%. And there is more to come. Anyone with a dividend-growth portfolio should ignore the trials in broad-market indexes and smile at all this cash flow.
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