Dear DTA,
I’m a young investor looking to beat the market and take advantage of the market dropping.
-Chuck D.
Hi, Chuck.
It’s great to hear from you. Thanks for writing in.
Our aim is to provide the quality, informational, inspirational, and actionable content that can help you achieve these goals.
But I’m going to take it a step further today by reaching out to you directly, providing you some direction and resources that I think can and will be extra helpful.
This is coming from a guy who basically wanted to do the same thing as you.
I wanted to take advantage of the market, especially when it was dropping.
I thought there must be a way to create a “win-win” situation, where you win whether the market is up or down – but especially when it’s down.
Well, there’s a long-term investment strategy that does just that.
And I used this strategy to grow both my wealth and passive income to stratospheric heights in an extremely short period of time.
In fact, I went from below $0 to six figures in wealth and five-figures in annual passive income – in six years.
I became financially free at just 33 years old. And I did it on a blue-collar, middle-class salary.
The investment strategy that allowed me to do this is dividend growth investing.
This strategy literally changed my life.
It guided me as I built out my FIRE Fund, which is my real-life and real-money dividend growth stock portfolio.
That portfolio generates the five-figure and growing passive dividend income I need to cover my expenses in life.
There are no secrets here.
My money is on full display for the world.
And I’ve publicly shared how I went from below broke to financially independent in just a few short years via my Early Retirement Blueprint – a step-by-step guide to help almost anyone achieve their early retirement dreams.
This strategy creates what I believe is a “win-win” situation.
See, when the market is up, any stocks you’ve purchased should also be up, increasing your wealth (at least on paper). Total return is up. Numbers are green. That feels nice. Most people would take that as a win.
But when the market is down, you really win.
That’s because any stocks you’re currently purchasing are lower in price and thus cheaper, meaning you’re probably looking at a higher yield, greater long-term total return potential, and less risk on every share you go out and buy.
Furthermore, any share buybacks the companies you’re invested in are executing on are also then operating under that more advantageous structure, magnifying the positive effects.
These favorable dynamics can have a significant impact on your investment performance over the long run.
The reason I chose dividend growth investing as the strategy that would allow me financial independence is really quite intuitive.
I mean, you’re basically relying on passive dividend income from some of the best businesses in the world, as you can see by perusing David Fish’s Dividend Champions, Contenders, and Challengers list.
The late, great David Fish spent years of his life tirelessly and selflessly compiling information on US-listed stocks that had raised their dividends each year for at least the last five consecutive years.
It should be no surprise that many companies on the latest iteration of that list are household names.
These are often blue-chip stocks because it takes a special kind of business to pay not just dividends to shareholders, but to make sure those dividend payments are regularly and reliably increasing year in and year out.
That takes an incredible amount of consistency in regard to profit and cash flow generation and growth.
And so it probably shouldn’t take a big leap of your imagination to see why blue-chip dividend growth stocks tend to beat the broader market over the long run.
You’re basically investing in the crème de la crème.
Ned Davis Research has done some backtesting on these stocks, showing that dividend initiators and growers vastly outperformed an equal-weighted S&P index between 1972 and 2016 (that’s over 30 years of data).
Reinvested dividends account for the vast majority of the stock market’s total return over a long stretch of time.
When you’re investing in stocks with higher-than-average yields that feature growing dividends, you’re amplifying this.
I actually take the time every Sunday to discuss how buying high-quality dividend growth stocks when they’re undervalued allows investors to take advantage of a dropping market and cheaper stocks, putting those aforementioned favorable dynamics on their side.
And I have this discussion while also sharing a compelling long-term dividend growth stock idea with the investment community at large.
This occurs via the Undervalued Dividend Growth Stock of the Week series.
Of course you should never invest in anything without first having a full understanding of what you’re getting into.
In terms of dividend growth stocks, you should be doing your due diligence before even thinking of putting capital to work.
That means a full quantitative and qualitative analysis, looking at risks, and performing a valuation.
Fortunately, we have our readers covered on this.
Fellow contributor Dave Van Knapp wrote a lengthy series of articles designed to cover the A-Z of dividend growth investing.
His Dividend Growth Investing Lessons discuss what the strategy is, why it’s so great, and how to successfully implement it.
It’s a very useful resource for novice and experienced investors alike.
If you want to beat the market and take advantage of a dropping market, these concepts and resources may serve you incredibly well.
But it’s ultimately up to you, Chuck, to use every resource at your disposal and move forward in a way that makes the most sense to you.
There’s no better time than today to take action.
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.