Successful investing is a bit like connecting the dots. Put enough of them together and they begin to form a picture.
Unfortunately, today's dots are pointing towards a recession.
With first-quarter GDP growth under 2% and a whole host of indicators moving in the wrong direction, it looks as though the U.S. economy has stalled.
That leaves income investors like us faced with a very important question: how do we best protect our portfolios from the stock price declines and dividend cuts that a recession would bring?
One simple answer is to invest in those countries that are not suffering recession. That opens up a world of possibilities.
For instance, you might consider investing in Japan, which grew at over 4% in the first quarter. Orix Corporation (NYSE: IX) is a name I like.
Or better yet you could invest in emerging markets where growth continues to sizzle.
That makes stocks like the Aberdeen Chile Fund (NYSE: CH) a good buy-especially considering the fund offers a dividend yield over 10%. The fund is attractive to me for two reasons.
First, it's because Chile is a well-run country, standing higher than the U.S. on several international business surveys. But more importantly, its dependence on copper and other commodities is not a problem unless the global economy as a whole goes into recession, which I don't expect.
With assets in primarily Chilean securities, the fund also offers investors a nice measure of diversification from the U.S. economy, since they can expect Chile to keep on growing– even if the U.S. economy takes a step backwards.
But that doesn't mean you need to avoid the U.S. altogether, either.
In fact, there is a key indicator I'll discuss in a moment which will allow you to preserve your income and the value of your investments through all but the deepest recessions.
First though, you'll need to avoid a few pitfalls. As always, it's never just a matter of picking the stocks with the highest dividend yield. It's just not that simple.