by Brian Palmer

Created on: March 28, 2009

If you are a long term investor looking to grow your wealth safely and steadily, then there are many qualities you want in a stock. Generally, you want safe and stable companies, which generate a large amount of cash. This will insure that you will receive a steady stream of dividends for years to come. And you want the stock to be stable, so your principal investment will not fluctuate too much.

When a stock does not fluctuate significantly from day to day, it is said to have "low volatility". Volatility is often measured in terms of a number called "beta". The beta coefficient of a stock relates the volatility of a stock to the volatility of the market as a whole (as measured by the S&P 500). A stock with a beta coefficient of 1 will be as volatile as the S&P 500, a stock with a beta coefficient of more than 1 will fluctuate more than the S&P 500, and a stock with a beta coefficient of less than 1 fluctuates less than the S&P 500.

And fortunately, the two goals of guaranteeing steady income and minimizing volatility go hand in hand: The stronger and more reliable a company is, and the higher the annual dividend, the less the stock fluctuates.

This type of investing is ideal for those looking to retire, who want a steady stream of income, but who also need to maintain their principal investment, while keeping their exposure to stocks.

But this type of investing is great for more than just retirees. With the power of compounding and increasing dividends, high yield, low beta stocks can turn any portfolio into a money machine. Read here to see how.

STOCKS VS. BONDS

Many people believe that the stock market and bond market are used in different ways: Stocks are great for capital appreciation, whereas bonds are great for income. But this type of thinking is quite misleading.

In reality, there is just as much opportunity for capital appreciation in the bond market as in stocks, and there are stocks which yield as much as a high quality bond. And there are great benefits in using stocks for income, rather than bonds. With stocks, you maintain exposure to the stock market and the opportunity for (unlimited) capital appreciation, and you also have the power of dividend growth.

There are drawbacks, however, to using common stocks to generate income. First, the stock market is more volatile as a whole than the bond market. But second, bonds always come first when it comes to dividends; if there's no cash left over after paying out dividends on bonds, the common

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