Dear DTA,
I just turned 90. I’ve suffered losses in the market with the crash of oil and failure of gold to pick up the difference. Please help me get ahead in this volatile market.
-Jacob G.
Hi, Jacob. It’s wonderful to hear from readers just like yourself. It’s because we appreciate our readership so much that we’re reaching out and responding to inquiries.
I’ve gotta say that it’s fantastic that you just turned 90. I can only hope I live as long. Happy belated birthday!
Sorry to hear about your losses, though. That’s unfortunate.
However, I would say that, being 90 years old, it would make sense to take a very conservative and income-oriented stance toward the stock market, while at the same time thinking strongly about your overall asset allocation.
Generating passive income right now should be a priority for you, as your advanced age somewhat limits the ability of compounding to significantly increase the value of your investments over a longer period of time.
And I’m assuming that you have a certain lifestyle that you’d like to retain – a lifestyle that includes not working for your income.
Speaking to the stock market specifically, I believe dividend growth investing is one of the most robust investment strategies available for investors of all ages.
This investment strategy is one where an investor buys shares in high-quality businesses that reward their shareholders with a portion of the growing profit they generate, with that reward coming in the form of regular and routine increasing dividend payments.
These growing dividend payments are the “proof in the profit pudding”.
After all, you don’t want a business to just tell you how profitable they are; you want them to show you.
Moreover, these growing dividends are indeed real-money payments that can pay real-life bills.
I’d know, as I built a six-figure dividend growth stock portfolio that currently generates five-figure growing passive dividend income for me.
I built that portfolio on a middle-class salary, with the intent that it would provide enough passive income for me to retire early in life. Indeed, I was able to quit my job at 32, and I became financially independent at 33 years old.
But the wonderful thing about this strategy is that it isn’t age dependent in any way. $1,000 in dividend income can pay my bills just like it can pay your bills.
It’s a fairly conservative strategy that’s highly income-oriented.
One can take a good look at David Fish’s Dividend Champions, Contenders, and Challengers list to see what I mean.
Mr. Fish has compiled information on more than 800 US-listed stocks that have paid their shareholders increasing dividends for at least the last five consecutive years.
Many stocks, however, have been paying out rising dividends for decades.
It’s a who’s who of world-class businesses: McDonald’s Corporation (MCD), The Coca-Cola Co. (KO), and Procter & Gamble Co. (PG) are all on Mr. Fish’s list because they have all paid out increasing dividends for decades on end.
Dividend growth stocks just like those could be viable investments for you, as they each offer a fairly high yield. Certainly better than what you’re going to get at the bank. And better than a lot of bond offerings, especially shorter-term Treasuries.
But it’s not just the growing dividend income one is looking at when investing in high-quality dividend growth stocks, as these stocks tend to regularly increase in value (and price) when the businesses themselves become worth more as they sell more products and/or services.
So it’s capital gain and increasing passive income.
That’s called having your cake and eating it, too.
Actually, it’s more and more cake, even as you continue to eat more.
Tough to beat it!
In addition, research has shown that dividend payers and growers outperform the broader market over longer periods of time.
Contrast that with gold, for instance, which is something you mention in your email.
Gold doesn’t pay income. Definitely doesn’t pay increasing income. And its value isn’t based on objective profit numbers, but rather gold’s value (and price) is determined by the collective of the market.
When you invest in McDonald’s, the value of the business naturally increases as they sell more cheeseburgers. And more cheeseburgers also means more profit, which fuels those bigger dividends. It’s a recipe that is proven.
But gold just sits there. It’s shiny and pretty, but that doesn’t pay the bills.
It’s obviously up to you how you invest your capital, but I think dividend growth investing is a fantastic strategy for investors of all ages, although, as noted earlier, you should be very careful in terms of your stock market exposure (via your asset allocation) due to volatility that is present in even the bluest of blue-chip stocks.
If you’re curious about this strategy and how to successfully implement it, fellow contributor Dave Van Knapp has put together a great series of articles that function as dividend growth investing lessons.
And then if/when you’re ready to put capital to work, I personally highlight a compelling long-term dividend growth stock investment idea each Sunday as part of my undervalued dividend growth stock of the week series.
Again, I would recommend a conservative stance toward investing in general and stocks specifically, due to your age. Being 90, the potential to make up lost ground is limited.
But a focus on great businesses and income generation can be a great way to think about investing, regardless of one’s age.
Your age is a gift, Jacob.
But growing dividends are the gifts that keep on giving.
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.