Dear DTA,
What are you guys advising people to do with their stimulus money? I’m expecting to get almost $4,000. Put it in cash? Invest? Where to go with this money?
-Walt A.
Hi, Walt.
Thanks for your email. It’s always such a pleasure to hear from our readers.
If you’re expecting almost $4,000 from the CARES Act, that means you have a spouse and three children.
You’re also under the $150,000/year income threshold for a married couple.
This situation would put you on track for a $3,900 check ($1,200 per spouse and $500 per child).
First, I want to note that I wouldn’t think of this as “stimulus money”.
This is more like a relief package, designed to keep people and businesses tide over until the economy opens back up.
With that in mind, I’d be thinking somewhat defensively with this money. Nobody knows exactly when things will return to normal.
How you go about allocating the money will largely depend on what kind of overall financial position your family is in, Walt.
But if you don’t have a lot of cash savings, you can’t rely on passive income to cover the bills, expenses are high, and you have debt, investing is probably not a good idea.
The most important thing to do right now is to make sure that you can see the other side of this pandemic. The money is your bridge.
In my view, this is a very temporary crisis, but it’s still an issue in terms of managing cash flow.
On the other hand, if your family has plenty of liquidity, then you might be looking at a generational opportunity for buying stocks.
And if you could put away a few grand without blinking, knowing that you don’t need this money for a decade or more, it makes a lot of sense to invest now.
However, all opportunities are not created equal.
In terms of the best opportunities, I’m of the view that high-quality dividend growth stocks are the best long-term investments you can make.
Why?
Well, give fellow contributor Dave Van Knapp’s Dividend Growth Investing Lessons a read.
This treasure trove of information tells you what these stocks are all about, why they’re so wonderful, and how to successfully execute your investments.
I’ve personally used dividend growth investing to build a rather significant amount of wealth in a short period of time.
I actually went from below broke at 27 years old to financially independent and retired at only 33.
And I lay out exactly how I did that in my Early Retirement Blueprint.
My real-money FIRE Fund now produces the five-figure passive dividend income I live off of.
Indeed, I’m not sweating too much through this crisis because of that dividend income.
While stock prices have fallen off a cliff, my dividend income has barely flinched.
It’s all about managing cash flow. I noted that earlier. I’m easily paying my bills.
You can think of dividend growth stocks as the golden geese that lay golden eggs.
Don’t slaughter the golden geese. Don’t worry about the ups and downs of stock prices.
Live off of the golden eggs, of which there are ever-more of.
And when the geese get cheap, you get greedy and load up on more.
More than 800 US-listed examples of these “golden geese” can be found on the Dividend Champions, Contenders, and Challengers list.
That list is in an invaluable source of data that includes information on stocks that have raised their dividends each year for at least the last five consecutive years.
That’s more golden eggs, year in and year out.
Many high-quality dividend growth stocks are at multi-year lows right now, Walt.
Some are priced lower than they were ten years ago. That’s even though the underlying businesses are healthy and producing much more profit and dividends than back then.
Lower prices equal higher yields, all else equal.
And higher yield means more income on the same invested dollar.
This is why it’s as imperative as ever to find the highest-quality stocks at the lowest possible valuations.
With this in mind, make sure to follow my Undervalued Dividend Growth Stock of the Week series.
This is a weekly series that highlights high-quality dividend growth stocks that appear undervalued at the time of publication.
Each stock undergoes a rigorous analysis and valuation screening.
I also include valuation opinions from professional equity analysts.
These are some of the best long-term ideas you’ll find. The series is free. No cost to you.
Now, keep in mind that that you have a spectrum of options in front of you.
It’s not an all-or-nothing choice with your $3,900.
You could save some, pay down some debt, and invest the rest.
How you go about allocating it will depend on your overall financial position, which I’m not privy to.
But if you do decide to invest, keep the above resources in mind.
No matter what you end up doing, I’ll leave you with my best piece of advice.
Make a plan.
Do so now.
The money will likely take a few weeks to get to you.
Look at your overall financial position and put things in motion.
Start planning today.
I wish you luck and success.
— Jason Fieber
Strange change at your bank [sponsor]At least 41 major US banks have just made a drastic change to the way money in America works. It could have some major implications for you, your money and your retirement. But it's crucial you understand what's happening, before these changes get applied to your bank account. Here's everything you need to know.
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.