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BEST Dividend Buys & More after the Fed Rate Cut - YouTube
Channel: Learn to Invest - Investors Grow
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hi I'm Jimmy in this video we're looking
at why the Federal Reserve recently cut
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interest rates for the first time since
2008 and what does it mean for us
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investors then after that we're going to
go over three different investments that
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I think will do very well in this new
type of economy and two of them are
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excellent dividend payers so if dividend
investments is something you're
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interested in stick around this is a
video for you okay so let's look at a
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few different things as to why the Fed
would cut interest rates at this point
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the labor market has been doing pretty
good this is a chart of unemployment
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going back the past couple of years and
as we could see this is heading in the
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right direction now I know some people
don't like the u3 unemployment rate
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since they say it leaves out things like
underemployed or people who stopped
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looking for work and that's true this is
the u6 unemployment rate which as we
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could see is higher than the u3 but the
trend is still looking pretty good so I
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think it's safe to say that the labor
market is overall doing decent and then
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when we jump over the S&P 500 this is a
five-year chart of the S&P 500 and
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clearly things have been going pretty
good in the stock market so why cut
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rates an interest rate cut is intended
generally to spur the economy forward
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keep things moving higher and in fact
the last time that we had a rate cut was
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all the way back here in 2008 and by the
way at that time the US economy was in
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trouble the US was very quickly slipping
into the Great Recession unemployment
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was rising fast the stock market had
already lost about a third of its value
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when the last rate cut was done so that
whole series of rate cuts at that point
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made a lot of sense but today is
different so why'd the Fed cut rates now
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well as they pointed on their
announcement this is more of an
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insurance move than anything else
they're trying to keep the economy going
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forward despite the fact that we're in
one of the longest bull runs in history
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but they also pointed out the fact that
with the trade tensions with the slowing
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growth around the world and muted
inflation lower interest rates make
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sense right now to them now the Fed also
let us investors know that this will not
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be a long drawn-out series of inter
straight cuts like they typically are
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like they were back in 2008 this is
supposed to be an insurance cut as they
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put it and ultimately the goal is to
keep things pushing forward so for us
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the question is what does this interest
rate cut mean for the economy well some
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economists say won't do anything 25 or
50 basis points isn't enough to move
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things along and I would probably agree
with that but they're not trying to turn
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the economy around here and in isolation
perhaps 25 basis points isn't enough but
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over the course of the year if there's
turns it to 50 or 75 basis points it
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might be enough to nudge the economy
along further since they're not really
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trying to spin things around they're
just trying to keep it heading in the
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directions it's already been going in so
the theory here is sort of like going
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back to the 1990s and as we could see in
the 1990s well the fed up the rates a
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couple times they lowered them a few
times they had a couple sort of bumps in
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them in the chart there and they kept
that going for a while until the end
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when the stock market really started to
go crazy and they tried to up the rates
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this level off the economy a bit so
let's assume that this is what the Fed
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is aiming for and if we're curious well
this is what the S&P 500 did during the
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1990s now I'm not on percent sure we're
gonna see this type of movement again
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because at that time period well the
internet was just becoming popular and
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we had the tech boom this whole thing
ends with the tech boom sort of crashed
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in the market at the end there I just
thought it made sense to look at this
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chart if we were curious how the market
reacted to these types of rate cuts
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during the 90s so now considering that
rate cuts have just happened are there
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any investments that we think will do
well in this new economy well one thing
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that's likely to happen is that the US
dollar should fall generally speaking
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higher interest rates would lead to a
higher currency and vice-versa so the
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fact that they're lowering rates should
lead to a lower current and if these are
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our gold versus silver ETF video well
you may recall that when the dollar
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Falls gold tends to do quite well to
illustrate this this is a chart of gold
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versus the US dollar and
and as we could see broadly speaking
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when the US dollar Falls well gold goes
up and this also happened the other way
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around then after a while on the tail
end of this chart we can see that the
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dollar sort of stalled out for a bit and
gold kept rising now I think that this
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has a lot to do with the fact that
people were worried and gold people were
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worried about the economy gentlemen in
general and gold is known as a defensive
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play so in theory makes sense to move
into gold not push the price higher that
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means that if we're still worried about
a collapse and we are interested in
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playing with something that should do
well if the dollar falls gold should
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work for us to weigh it's both a
defensive play and it should inherently
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get stronger as the dollar falls now
just like I said in the gold versus
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silver ETF's video my favorite gold ETF
is BAR why you ask no it's not because
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I know the guy that started the ETF it's
just because that ETF acts just like the
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price of gold why because what they do
is they buy actual gold that's it
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most importantly though they have the
best fee GLD is the largest gold ETF in
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the world and they charge 40 basis
points to a basically invest in gold bar
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does the exact same thing except the bar
charges 17 and a half basis points it's
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as simple as that
so for the gold piece of our portfolio
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var makes the most sense in my mind now
what about ETF now I actually have an
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ETF that I've been watching and I think
it is well suited for this particular
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situation this is the S&P 500 high
dividend ETF put up by spiders and they
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have a feel about 7 basis points they
have a dividend yields of almost four
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and a half percent and they own about 80
companies that invest in the top
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dividend stocks from the S&P 500 some of
these companies aren't quite as large as
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the companies you'd find in an ETF like NOBL which is another great dividend ETF
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but this one I think has a little growth
potential on top of it which is why I
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would like it in this type of slow
growth economy now this is a fairly
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diversified ETF and I think that it has
the potential to do well even if the
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market
were to pullback dividend-paying stocks
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have been known to outperform once a
recovery begins and assuming that we
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want to own this fund for the long run
well it makes sense to invest in
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something that pays a good dividend like
this and it provides a certain amount of
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safety through the full let's say
through a full market crash and recovery
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if that were to happen and for our final
investment in what we'll call a suspect
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economy well there I think it makes
sense to go with target ticker symbol
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TGT I believe that target is well
positioned to thrive in this type of
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economy we'll call it a slower growth
but still positive economy in this
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scenario I would expect for target for
target to do very well and since they're
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currently trading at a PE of bond 15x
compared that to the if we compare that
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to the S&P 500 by 19x they seem rather
reasonably priced and then they're
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sitting on a dividend yield of about 3%
so we get to collect a decent dividend
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while also positioning our portfolio to
do fairly well if the company continues
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to perform at a decent pace as the
economy somewhat sort of slugs along now
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we also have a choice like Walmart but
Walmart has a lower dividend yield and a
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higher p/e multiple so given those
choices I think it makes far more sense
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to go with a great dividend stock like
Target so what do you think of the Fed
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cut do you think it was a good move and
which of the three investments do you
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think will outperform over the next
couple of years do you have one that you
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think will do better please let me know
what you think in the comments below if
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you haven't done so yet please hit the
thumbs up hit the subscribe button thank
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you for sticking with me all the way
into the video and I'll see in the next
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video thanks
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