Today’s investor has forgotten how to make money…

We’re not calling anyone dumb – but too many are shortsighted. Lots of folks in the market are too focused on making giant, overnight gains on companies with no profits or even sales.

Picture somebody sitting on his couch, still in pajamas, scrolling through Twitter or Reddit for the latest hot speculation… He’s hanging on every word from Elon Musk… And then he opens up Robinhood on his phone to place moonshot bets.

If you only invest in growth stocks, you’re missing a huge opportunity to make money…

It may not be a sexy idea. But it’s how the vast majority of investors in the past have been able to become wealthy in the stock market.

Dividends have played a crucial role in generating positive returns…

For example, since 1926, dividends have represented roughly 32% of the total return for the S&P 500 Index. Capital appreciation has made up the remaining 68%.

Imagine the boneheaded investor who based his entire portfolio on stocks that don’t pay dividends. They can only generate a return if their prices go up. Over time, he’s leaving a lot of money on the table.

Owning dividend stocks is also a defensive tool. In decades where major financial crises strike – like we saw in the 1930s and 2000s – dividends can keep a portfolio afloat. Take a look…

Dividends aren’t just cash in your pocket. They’re also a sign of strength. Companies that increase dividends year after year often have strong businesses with wide moats. These are companies that can hold up well during times of economic stress.

Now is the right time to put money into dividend-paying stocks…

Interest rates have been on the rise recently. The yield on the 10-year Treasury has moved from about 1.35% in early December to 1.84% today.

That doesn’t seem like a massive move because rates are still ultra-low. But the shift has been weighing on growth stocks. That’s because rising interest rates make future profits worth less versus money you can collect right now.

Growth stocks aren’t the only investment that’s likely to be weighed down by rising rates. You typically see some folks rotate out of precious metals like gold as well…

Gold doesn’t pay any yield. When rates are low, gold looks more attractive as an investment. But as rates rise, folks are drawn out of gold and into safe bonds that can pay them cash.

With similar logic, you should expect to see dividend-paying stocks take a hit when rates rise.

Government bonds are risk-free. While dividend-paying stocks are safer than other stocks, they still come with risk. So as yields rise on safe bonds, we often see folks shift their money away from dividend-payers and into bonds. It’s hard to beat risk-free.

But here’s the strange thing… Recently, we saw the opposite.

Rates went up… and dividend-paying stocks went up as well. And the S&P 500 High Dividend Index has outperformed the S&P 500 even as rates crept higher…

This tells us that folks are finally coming to their senses. They have recently been burned by growth stocks and are now putting their money to work with dividend-payers.

I think this trend will continue – even if rates continue to move higher. Dividend stocks have been out of favor for much of the last couple years… and they have to catch up.

Here’s to our health, wealth, and a great retirement,

— Dr. David Eifrig

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.

Source: Daily Wealth