Why Dividend ETFs, REIT ETFs And Low Volatility ETFs Still Work

Many investors are aware that the current economic expansion is the longest in U.S. history. 10 years and six months.

Some believe that the growth does not need to end. Ever. They quip, “Economic expansions don’t die of old age”.

Others wonder if the business cycle will end soon. After all, every decade on record has experienced at least one recession.

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no-recession-in-this-decade

The problem with focusing on when the next recession will occur? It assumes that asset prices decline dramatically because an economy shrinks. That has not been the case in the 21st century.

Here in the 21st century, causation has been turned on its head. Recessions did not cause stocks, bonds and real estate to get crushed; rather, asset price decimation caused the recessions that transpired.

Consider the 2001 recession. It came about due to the bursting of the tech bubble in March of 2000. Severe stock price depreciation, particularly in dot-com names, led to the layoff of millions of employees and to a painful pullback in consumer spending. Indeed, a vicious bear had been clobbering stocks for a full year prior to the 2001 recession.

What about the Great Recession (12/2007-5-2009)? The housing bubble actually burst in the first quarter of 2007, 10 months prior to the December time stamp. What’s more, it wasn’t until late in the 3rd quarter of 2008 that recessionary pressures were being acknowledged.

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home-prices

Voting members of the Federal Reserve understand this 21st-century dynamic. Not surprisingly, then, committee members will do whatever it takes to keep asset prices afloat.

Most recently, the Fed began “QE4.” Nobody wants to call it that. Yet when a central bank creates trillions of electronic dollar credits out of thin air to buy assets and never gets rid of those credits, the central bank has engaged in electronic money printing.

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ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser ...

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