A Few Years Away from Retirement? This Strategy Could Grow Your Wealth and Income

Dear DTA,

I’m seven years away from retirement. I would like to grow the assets I have. I currently have no need for income growth, but I would like to preserve my assets. I’m not risk averse. I am willing to accept some volatility.

-Jon D. 

Hi, Jon.

Thanks for writing in. We appreciate your readership and your willingness to reach out.

The reason I’m tackling this question today is because I believe we have a lot in common.

I currently live off of the investment income my assets generate for me, as I retired from my career four years ago.

I’m also willing to accept volatility like yourself.

The main difference between us might be that you have no need for income growth, whereas I believe income growth should be a primary and built-in function of one’s investments.

See, the problem is that inflation slowly eats away at the purchasing power your income provides for you.

If your income isn’t growing, it’s falling behind. That’s just the nature of things.

While you have no need for income growth now (because you’re still working) you will have need for it soon enough (when you retire).

And so why not take the time today to prepare for that eventuality? 

Now, I mentioned that I’m retired and living off of investment income.

But the thing is, I’m only 35 years old.

As I laid out in my Early Retirement Blueprint, I used a very simple investment strategy to go from below broke at 27 years old to financially free at 33 years old.

That investment strategy is dividend growth investing.

Indeed, my real-life and real-money dividend growth stock portfolio – my FIRE Fund – generates the five-figure and growing passive dividend income I need to cover my basic expenses in life.

Now, these are stocks in the portfolio. So there’s naturally some volatility.

But like you, volatility doesn’t bother me.

I actually see short-term volatility as a long-term opportunity, which means short-term fluctuations in prices (to the downside) can often present advantageous moments to buy into great companies at better valuations.

A fundamental appeal of this investment strategy is the fact that growing dividend income makes for a fantastic source of investment income. 

That’s because the dividends are passive and growing.

Jason Fieber's Dividend Growth PortfolioThe passive nature means you’re not having to commit to any ongoing work – or asset sales – to generate the investment income you need to live your life.

And the growing nature means you should be able to at least keep up with inflation (keeping your purchasing power intact), if not actually outpacing inflation (increasing your purchasing power).

That’s important as you age and increase the odds of facing expensive healthcare issues that could drain your income a bit faster than you had anticipated.

But this strategy is more than just growing income.

It’s truly a win-win, because the underlying assets (the dividend growth stocks themselves) are typically increasing in value as the businesses they represent equity in are becoming worth more. 

After all, those growing dividends have to be funded by growing profit. Can’t pay dividends with money you don’t have. And if the dividends are growing, so must the profit.

As profit grows, a company becomes worth more.

That increased value might not always be exactly recognized the market at all times (leading to the aforementioned volatility), but the price of your stocks (and thus the market value of your assets/portfolio) should increase over the long run.

I can tell you that I wouldn’t have quit my job in my early 30s if I didn’t feel like this strategy could hold up over the long run, seeing my dividend income and portfolio grow over time.

But it’s not a risky strategy, overall, because many high-quality dividend growth stocks are blue-chip stocks.

You can see what I mean by checking out arguably the finest spreadsheet on dividend growth stocks out there: David Fish’s Dividend Champions, Contenders, and Challengers list, which contains invaluable information on more than 800 US-listed stocks that have raised their dividends each year for at least the last five consecutive years.

Stock that are on that list include: Apple Inc. (AAPL), Colgate-Palmolive Company (CL), Johnson & Johnson (JNJ), and McDonald’s Corporation (MCD).

These are world-class businesses.

They’re earning a lot of profit.

And they’re sharing a big chunk of that profit via those growing dividends.

This could mean growing wealth and growing passive income for you, ensuring a long, happy, successful retirement. 

But where do you start? 

Don’t worry, Jon. We’ve got you covered.

Fellow contributor Dave Van Knapp penned an excellent series of articles that collectively serve to educate novice and experienced investors alike on exactly how to best take advantage of dividend growth investing.

That series is his Dividend Growth Investing Lessons.

The time will come when you’re ready to put some (new or old) capital to work.

That’s why I helm the Undervalued Dividend Growth Stock of the Week series.

Undervalued Dividend Growth Stock of the Week by Jason FieberEvery Sunday, I highlight a high-quality dividend growth stock that appears to be undervalued at the time of publication.

These are compelling long-term investment ideas for dividend growth investors. And I usually am invested in these same stocks, meaning I’m investing alongside everyone else.

I don’t just talk the talk. I walk the walk.

And walking that path has led me to financial independence at a very young age.

You can use this same strategy to ensure your retirement is wonderful.

But it’s ultimately up to you to take action, Jon.

Right now is your moment. 

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.