I recently read some articles over the last few weeks about resolutions for investors this year. With oil prices tanking and our Canadian dollar dropping like a stone, I thought I’d offer my own take, when it comes to my approach to dividend investing so here goes.
- Stay an owner
My intent (easier said than done when stocks are falling…) is to buy and hold companies that have a long history of rewarding shareholders. Yes, the market is a mess right now and it could drop much further but I’m confident the companies we own will not only survive this market downturn but most of them will continue to pay dividends during it. I’m also an owner in thousands of companies via low-cost Exchange Traded Funds (ETFs) so this provides me with some additional diversification.
- Be patient
If the stock market falls 10%, 20%, or even 30%+, and it worries you, you probably have too many equities in your portfolio. Stock market corrections and crashes, can, do, and will happen. It’s not fun watching our small portfolio dive in value but it’s absolutely normal and it’s part of the risk that that comes with equity investments. There must be patience that comes with short-term market pain for long-term market gain, although capital gains are never guaranteed. I have to be patient for the future: by staying invested equity returns over the coming decade should return more than fixed income investments and fixed income should return more than idle cash.
- Reinvest dividends (and distributions)
Although retirees certainly don’t want to hear this, and I don’t blame them, investors saving for retirement should be cheering for stock market corrections so they can deploy their money into equity investments at lower prices. This is where I believe reinvested dividends (or distributions) can help all investors. By reinvesting the cash paid to shareholders, including times when the market is diving downwards, investors in their asset accumulation years can embrace fallen markets allowing the power of compounding to take full effect.
Remaining an owner, staying the course and reinvesting the money paid, these are three simple things dividend investors can do to build their financial nest egg. Simple doesn’t always mean easy though.