Five reasons to love this lousy market

What”s the matter, Bunky? You say you decided to dip your toes in the market and had them nibbled by sharks? You say your biggest speculation today is how long you can look at the Dow Jones industrial average without weeping? You say you visited your broker’s web site, only to discover it’s now run by a bankruptcy lawyer?

Brokers with their hands on their faces.
Brokers with their hands on their faces.

Well, cheer up, Bunky! Someday, the clouds will part, the sun will shine, and you’ll be running with the bulls once again! But until then, here are five reasons to love this nasty market:

1. Tax losses. Let’s say you bought Ali Baba at $119 back in November, and now you’re wishing you’d thrown in your lot with the 40 thieves. BABA is down to about $81. What should you do? Sell it. You can use your losses to offset an unlimited amount of capital gains. If you have more gains than losses, you can deduct up to $3,000 from your 2015 income. If you really backed up the truck, you can carry additional losses over to your 2016 taxes.

2. Cheap stocks. The biggest knock against this market has been that it’s too darn expensive. Valid criticism! But now the market is 5% cheaper. And some areas, such as energy, are much, much cheaper. ExxonMobil, for example, is down nearly 24% and sports a dividend yield of 3.7%. The price of oil is a big wild card, but it’s better to buy a high-quality company like ExxonMobil when it’s cheap than when it’s dear.

3. Rising yields. A rising yield is typically a function of falling prices, not corporate largess. If you have a $50 stock that pays out $1 in dividends, its yield is 2%. If that stock falls to $40, its yield rises to 2.5%. Right now, some traditional dividend favorites are seeing some nice yields. Duke Energy, for example, yields 4.6%. AT&T yields 5.5%. While a high yield is also a yellow flag — the company might cut its dividend, and Wall Street hates that — it could also be a good deal.

4. Rebalancing. As downturns go, this one has been a piker. Normally, you need a 10% move down to be in a correction, and a 20% dive to be in a bear market. So let’s not get overly dramatic yet. But if you want your portfolio to have a set mix of stocks and bonds — 60% stocks and 40% bonds is a traditional conservative blend — you sometimes have to sell some of your winners and add to your losers to get back to where you want to be. You should wait until your portfolio is at least 10 percentage points out of whack. But if you have an aggressive portfolio, you might be approaching those levels.

5. Schadenfreude. For those of you who don’t speak German or have an English major in the family, schadenfreude is a German word meaning, roughly, “laughter at the expense of others.” Have a friend who’s been touting gold all these years? Give him a call.

 

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