Late to Wall Street's Party … Still Want to Dance?

January 7, 2011
Shirley M. Mueller, M.D.

The stock market is nearly double its level of March 2009, with the Dow Jones Industrial Average returning to highs not seen since the Dot-Com bubble. Investors seem upbeat and encouraged about the outlook for the U.S. economy for the first time in years. Still, not everyone is in on the fun -- and some are wondering whether they can still join in on the festivities. Is it too late? Hard to say, but here are some investments to limit your risk either way.

The stock market is nearly double its level of March 2009, with the Dow Jones Industrial Average returning to highs not seen since the Dot-Com bubble. Investors seem upbeat and encouraged about the outlook for the U.S. economy for the first time in years.

Still, not everyone is in on the fun -- and some are wondering whether they can still join in on the festivities. Is it too late? Hard to say. One questions to ask is, “What might still work, no matter where the market goes?”

One way to find a partner after a delayed arrival is to trim down your dance card. Looking for yield in a an exchange traded fund (ETF) is one method. Even if the price doesn’t go up, at least you’ll have the income. You can find a list of dividend-paying ETFs here.

The chart below provides some examples of four ETFs that pay respectable yields:

Exchange Traded Fund

Symbol

Asset-Allocation

Yield

Expense Ratio

Sharpe Ratio

SPDR S&P Dividend

SDY

Medium-Large Value

3.84%

0.35%

0.90%

Vanguard Small Cap Value ETF

VBR

Small Value

1.71%

0.14%

0.14%

PowerShares Intl Dividend Achievers

PID

Large Blend

3.52%

0.57%

0.13%

Vanguard Dividend Appreciation ETF

VIG

Large Blend

2.14%

0.24%

-0.04%

The next challenge is to make an educated guess as to whether any of the above ETFs have any chance of price appreciation on top of their yields. One way to approach this is to use their 20- day, 50-day and 200-day moving averages. If the former two are still going up, there may be more upside potential. For example, the 20-day and 50-day moving averages of VIG (shown below) are still ascending.

Compare that to SDY and PID, which have comparatively flattened out. SDY (shown below) demonstrates this. The chart above and below were constructed by using the basic technical analysis option for the ETFs on the finance page of Yahoo.com.

Just like the best partners might already be taken when someone comes late to a dance, this can happen in the stock market, too. It is also a bit like a social gathering. After a time, enthusiasm peters out and everyone goes home. If you think, though, like some do, that this market party still has some juice, the approach above is one way to consider attending late and possibly still being able to successfully dance.