All investors have one common goal in mind: to get the most return for the least amount of risk. Every experienced investor knows that an investment won’t be “up” all the time (although that is our secret wish.)
As I have said many times on the radio, I have confirmed what investors really want, and its fairly simple. All they’re asking for is 20 percent returns, zero percent risk, and 100 percent liquidity. Other than that, they really are not asking for much!
As investors gain experience over time, they realize that markets will be up and down for the rest of their lives. The economy and markets move in cycles. If you take the long view, and simply let cycles play out with high quality dividend paying stocks, you can build up capital over time, systematically. You are putting math on your side, and harnessing the market’s power.
Jumping in and jumping out is hard work and costs money every time you do it. If Warren Buffett had jumped out of the market every time it went down five to ten percent, you would not even know his name today. Money is made by owning quality assets, that pay you to own them, and continuing to buy more of them when markets decline.
Mr. Buffett, rather than panicking when markets fell, had two operating words when it came to well-researched stocks: “buy more”. With a dividend growth and reinvestment strategy, you are doing exactly that. When markets decline your dividends are growing. You are using your growing dividends to buy more shares of quality companies at bargain prices.
What that really means is that while it can feel good to be “up” all the time with your account balance, you will be building wealth more consistently when the market is taking a breather.
Amateur investors try to time markets. They honestly believe they know when to get in and when to get out. Many of them are still sitting in cash after the 2008 crash, ten years ago. One of these days, they’ll get back in. Right.
Smart investing involves choosing between trying to time markets and/or growing true wealth over time, systematically. Market timers have exceptionally poor track records as can be verified through many sources, including Dalbar, Inc.
The IQ Wealth Black Diamond Dividend Strategy™ is an actively-managed, rules-based approach to the selection of equities. The portfolio seeks to identify higher-value, large cap and mid-cap individual dividend growth stocks with “wider moats.”
The goal is to screen down from over 4,000 stocks to find the 20-30 that have increased their dividends every single year for a minimum of ten years or longer, and that meet at least six other criteria. The goal is find companies that Warren Buffett refers to as “virtual monopolies.” In other words, these are companies that have a wide moat in their industry and sector, and continue to grow their profits and their dividends.
They could be called “recession resistant” perhaps, but in any case, they are industry leaders with better mousetraps.
The current market we are in is destined for further correction and perhaps a bear market at some point. A bear market is a period of consistently falling stock prices. Generally, a bear market is characterized by a 20 percent or greater decline in stock prices extending over a time frame of two months or longer.
The shift in prices is measured using the movements of a major stock index, such as the Dow Jones Industrial Average or Standard & Poor 500 Index.
A bear market is different from a correction, which occurs when stock prices drop by 10 percent over a shorter time frame, usually less than two months. The average bear market lasts 1.4 years with downturns of from 21% to 41%. Source: Dow Jones, Standard & Poors
The average Bull Market, on the other hand, has lasted 9.1 years with an average cumulative total return of 480%. What does this point to in terms of investor intelligence? Take a longer view. Ride out the 1.4 years, using your increasing dividends to accumulate even more shares, seeing it as “money time.”
Real lasting wealth is built when prices are low, not when prices are at their peak.
That tempts people into believing they can time the market. But if you are trying to time the market, the odds are you will never jump in with both feet when the market is getting clobbered. The news will look too bad. You will likely wait until things “look better.” It is human nature to wait until the “coast is clear.” By doing that, you lower your overall chance for consistently higher returns. You will invariably be on the sideline when you should be in the game.
That’s the advantage that patient dividend growth investors have. They are always buying more quality shares, even when the news is bad. Staying with a winning strategy that has built many fortunes gives you a way to actually benefit from corrections and bear markets.
Then, after the bear recovers and you didn’t panic, your higher number of shares are in position to take advantage of the next 9.1 years of growth, on average.
Why Bucketing Your Money Is So Smart
The reason we favor bucket planning at IQ Wealth is to allow our clients to ride out and gain from market declines over time. By keeping a healthy share of your money safe and sound with properly chosen annuities in Bucket 2, you can confidently invest like a pro in bucket 3. You are insuring your income, insuring your outcomes, and investing the rest with purpose.®
We will see where this market goes. There are currently pressures from the Fed, which has raised rates too aggressively in my view. There is no appreciable inflation on the horizon. China is a wrestling match, and Russia is always looking to disrupt things. But our economy keeps rolling on. One thing is for certain–if the market finally corrects, it will only be temporary. No market in history has gone down and stayed down. There are trillions of dollars on the sidelines waiting to invest. Remain patient during declines with dividend growth stocks, reinvesting consistently.
You and Warren Buffett will not be panicking, you will be growing wealth together, systematically.
I reiterate: It’s money time.
Steve Jurich is an Accredited Investment Fiduciary and Wealth Manager with IQ Wealth Management in Scottsdale, a registered investment adviser. He is a Kiplinger contributor and his radio show MASTERING MONEY can be heard daily on KFNN, AM1510 from 8-9am monday through friday. MASTERING MONEY Sunday Edition can be heard at 10am Sundays on KFYI, AM 550. Podcasts are available here