Why Dividends are Your Friend

What Happens if Chairman Powell Is Fired?

Perhaps one of the most notable updates over the past several days has been the new administration’s rhetoric regarding removing Jerome Powell as Chairman of the Fed. Any successful attempt to accomplish this questionable goal will likely rattle the markets.

In our opinion, bond markets and the value of the U.S. dollar will likely be impacted the most. We believe the possibility of removing Chairman Powell from his position is rather remote but requires attention.

As we learned a few weeks ago, there are some restraints, as the turbulence in the bond market resulted in the new administration’s decision to delay the reciprocal tariffs for 90 days. The rhetoric will likely continue, as the new administration may find it appealing to identify a responsible party if any of the current policies are not successful.

As a purely practical matter, even if Jerome Powell is removed, monetary decisions are made by the committee, which is a 12-person group. The chair certainly has some influence but cannot make these decisions on his or her own.

So, any quick reversal in monetary policy decisions is somewhat unlikely, even in this rather dramatic case. If this is a concern, we suggest you consider including short-term Treasury bonds, Treasury Inflation-Protected Securities (TIPS), and gold in your portfolio. Dividend stocks are a good choice too…

Update: At around 6:00pm EST on Tuesday, April 22nd, the president said he had “no intention of firing” the Fed chair. This came only a few days after posting that his “termination cannot come fast enough.”

At least for now, we consider this issue to be resolved.

Why Dividends Are Your Friend in Today’s Market

For those of you who regularly read our newsletter, you know that we are proponents of dividend-paying stocks.

These types of investments serve as a core building block in many of our Fortress Financial Plans. If you are interested in taking advantage of the market turbulence, consider dividend-paying stocks. More mature, dividend-paying companies that are part of the Russell 1000 Value Index are down by approximately 4.2% this year. So there is some discount in place.

Depending on your preferences, you can find companies in strong financial positions that pay anywhere between 3% and 6% in dividends. If the market recovery takes longer, you would still collect the dividends to strengthen your cash flow in this turbulent market.

The More Things Change, the More They Stay the Same

Sudden declines can make many investors forget that some of the best market days occur in down markets. According to Hartford Funds, 78% of the stock market’s best days occur during down markets. What’s even more important is that over the past 30 years, missing the market’s 10 best days reduced returns by half. If you somehow managed to miss the best 30 days, the total return would have been reduced by an astonishing 83% (!).

As Sir John Templeton famously said, “This time is different” are some of the most dangerous words. Templeton's caution is rooted in the idea that each market cycle has unique elements.

However, human nature and market psychology, specifically fear and greed, remain constant, causing similar patterns of boom and bust to repeat over time.

Ignoring these timeless lessons can lead to costly mistakes, so stay disciplined and vigilant!