Dear DTA,
My goal is to survive the crash and beat the thieves at their own game. Help me make this happen. I don’t have a lot, but I want to compound what I have so that I can maintain my family’s living standard in the upcoming crisis.
-Jake V.
Hi, Jake. Thank you for writing in to us. We appreciate our readership, and so we’re taking the time today to respond directly to your email.
I’ll just quickly point out that I’d caution against thinking of the stock market as some merry band of “thieves”.
The stock market is actually anything but, as it’s been one of the best wealth creators and income generators over the past century.
Over that time frame, the broader market has compounded at 9%+ annually.
For perspective, $1,000 that compounds at 9% annually will turn into $6,000 after 20 years (ignoring taxes and inflation). Now just imagine what $1,000 here and $1,000 there can add up to.
If that’s thievery, you can sign me up!
Not only that, but the barriers to entry are practically nil.
Any adult living in the US can sign up for a brokerage account and start buying stocks (or the market as a whole) almost instantaneously, all for very little (or no) money. No special skill required. You needn’t “know” anyone on the inside. There’s no game being played that excludes certain people.
I have firsthand experience.
Just seven years ago, I was flat broke. Actually, “flat broke” is putting it lightly – my net worth was negative, meaning I was “in the hole”. I was below broke.
But knowing that I was the one to dig this hole, I knew it was up to me to dig my way out.
I was working at a car dealership at the time. In Florida.
Couldn’t be further away from Wall Street if I tried.
Yet I opened a brokerage account in early 2010. I started counting and saving my pennies. And those pennies starting adding up.
That’s because I adopted a very frugal lifestyle. Whereas other people are talking about cutting down on the “daily latte”, I was looking into selling my car and taking the bus everywhere.
Once these pennies starting adding up, I started investing them into high-quality dividend growth stocks like those you’ll find on David Fish’s Dividend Champions, Contenders, and Challengers list.
I chose dividend growth investing as the investment strategy that would allow me to dig my way out of my hole because it’s extremely robust and tangible, and it’s a strategy that tends to outperform the broader market (the one that compounds at 9% annually over the long run) over longer periods of time.
That means you can build wealth on one hand and growing income on the other.
Moreover, the growing dividends that many dividend growth stocks pay out are not only bigger than the broader market, but the growth rate is often in excess of inflation.
So that means you’re getting: greater wealth, more income, and better income growth.
Plus, many of these stocks are less volatile (i.e., lower beta) than the broader market.
There’s really very little to dislike about the strategy.
So repeating that aggressive saving and investing in high-quality dividend growth stocks over and over again eventually resulted in the real-life, real-money dividend growth stock portfolio that currently generates five-figure passive dividend income on my behalf.
It also resulted in financial freedom, which I attained in early 2016, at the age of 33.
I explain exactly how I went from below broke to financially free in my “blueprint” to early retirement, which is something that pretty much anyone can follow.
But let’s just reiterate something here: I was working at a car dealership.
This is a middle-class job with no ties to the financial market.
Yet I was able to freely invest my capital into high-quality businesses that reward me, as a shareholder, with a direct and tangible portion (those growing dividends) of the increasing profit these businesses generate.
There’s no thievery happening here. If anything, it’s an incredible gift. And I’m very thankful to have the opportunity to participate in the financial market.
Now, the other portion of your question implies that a crash is coming – perhaps very soon.
The thing is, nobody knows if/when a crash is coming.
Market corrections are pretty common, however. A correction is a dip of 10% or more. And they’re actually a healthy feature of the stock market, as they often correct overvaluation.
A crash, though, isn’t a correction. A “crash” is usually thought of as a sudden and large-scale negative movement in the market. These are far less common, far less healthy, and far less likely to occur at any given time.
That’s not to say that a crash can’t or won’t occur. I’m just saying that I wouldn’t invest my money as if one is just around the corner, because that’s just historically not probable.
Moreover, the great thing about high-quality dividend growth stocks is that the underlying dividend income rarely “crashes”.
Said another way, many high-quality dividend growth stocks have been paying increasing dividends for decades, which stretches right through multiple major crashes, including the most recent financial crisis.
For instance, Emerson Electric Co. (EMR) has paid an increasing dividend for 60 consecutive years. Johnson & Johnson (JNJ) has done so for more than 50 consecutive years. McDonald’s Corporation (MCD) has been sending out ever-larger dividends for more than 40 consecutive years.
You see where I’m going here.
If you’re concerned about maintaining your family’s standard of living, it’s hard to accomplish that more successfully than what’s possible with dividend growth investing, as these businesses have been taking care of their shareholders for decades.
Furthermore, this isn’t just “maintaining” a standard of living. Because these dividends are often growing faster than inflation, one’s standard of living can often actually improve as their purchasing power increases.
On top of all that, due to the aforementioned low beta, many of these stocks don’t fall as hard as the broader market does when major drops occur.
With this in mind, I don’t really concern myself with stock market crashes.
Once you kind of reprogram your thinking to look at the market as a capitalistic opportunity for the masses, you’ll probably become far more optimistic and successful as an investor.
And once you realize that market crashes are pretty rare, you’ll probably become a far more capable and confident investor.
If you’re instead convinced that Wall Street is filled with thieves and the next crash is just around the corner, I’m not sure why you’d ever invest your money. I don’t think I’d be very comfortable with the idea of thieves handling my money.
But if you take some of these words to heart, I believe you’ll be better off for it.
And if you decide that you’re interested in learning more about how dividend growth investing works and why it’s such an incredible long-term investment strategy for the everyday person, I’d recommend checking out fellow contributor Dave Van Knapp’s dividend growth investing lessons.
It’s a series of articles that walks you through pretty much everything you’d want to know about the strategy.
And then once you’re ready to actually put capital to work, I publish an article every Sunday that highlights an undervalued high-quality dividend growth stock for that week.
Ultimately, Jake, it’s up to you to take the next step.
But if you come around to realizing that the stock market isn’t sanctioned thievery, you’ll want to think about taking action today.
As the Chinese proverb states, “The best time to plant a tree was 20 years ago. The second-best time is now.”
I wish you luck and success.
Jason Fieber
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Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.