For many investors, it’s a very hard time right now, especially emotionally. And I totally get it, some of the daily declines might be more than your entire yearly savings rate if you’re already a bit further along on the journey.
Hence, seeing the stock market drop more than 20% since the start of the year is emotionally very challenging. It’s therefore natural that some of you start asking some more fundamental questions like:
- Should I shift some money into bonds? or maybe go in cash?
- Is this dividend growth investing strategy really working?
- Are my stocks in the portfolio of high enough quality to weather a storm?
And of course, all these questions are very valid, because investing is personal.
On the other hand, it’s really important to remind yourself about why you are investing in the first place.
I assume that you have a plan in place which you have written while you were in a stable state, emotionally speaking. My only recommendation is to look back at that plan and read it very carefully.
Has your opinion changed since then? Does it still look solid enough?
My Investment Strategy
As an example, my plan is to retire early based on organically growing passive income and I aim to achieve this via dividend growth investing.
In other words, I invest for Cash Flow!
I am still in the accumulation phase, so currently I am trying to save as much as possible of my monthly income (~50%) and reallocate that money into dividend growth stocks.
At the same time, I expect my portfolio holdings to grow their dividends by 6% annually over the long run.
Last but not least, I ALWAYS reinvest my dividends.
Honestly speaking, I’ve never even transferred money out of my brokerage account and I would definitely need to read the FAQ to figure out how to do that.
It sounds relatively simple, right?
So, how to weather this storm emotionally?
Stop looking at the wrong charts!
As a dividend growth investor, your portfolio value or the price movements in the S&P500 are mostly IRRELEVANT.
For my strategy, the single most important metric is to see my dividends growing year over year.
And while the broader stock market is down by 20% to 25% year over year, my Cash Flow from dividends is way up year-over-year!
Not even a single blimp in the growth chart!
And it doesn’t mean I never had setbacks. Of course, I had them. Just look at Shell and Disney who cut their dividends during the depth of the 2020 Covid pandemic.
Nevertheless, I also used that opportunity to buy other high-quality dividend stocks that were on sale, i.e. Chubb and Johnson & Johnson.
The annual dividend hikes from my other portfolio holdings and my new investments have easily offset the loss in dividend income from both Shell and Disney.
Hence, my biggest learning is to just open my portfolio tracker spreadsheet and look at the dividend income chart.
In my opinion, this is pure chart-porn and it makes me very peaceful watching it.
It’s almost like going to a museum where you can just sit down in front of a great painting and observe the masterpiece in front of you.
Because in my opinion, dividend growth investors are all building their own little masterpieces that will change their lives for good.
Be your own Rembrand, Picasso or Da Vinci. Just don’t forget to appreciate your own work, it’s worth every second of it!
And by doing that, I’m pretty sure that you’re emotions will do just fine.
I felt it was needed to share my thoughts on this because lately I have received several questions and observed several of you on social media.
It is especially hard for investors that have never seen a down-cycle yet but have put all their hard-earned money into their portfolio.
Hence, I see it as our duty, the more experienced investors, to help our less-experienced friends out.
Having said that, are there any other learnings you would like to share which might help other investors reading this article?
What is keeping you emotionally in control during a down-cycle?
All, have a great week ahead and keep on dollar-cost-averaging 👌
European Dividend Growth Investor
I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.