Do you like roller coaster rides? Clearly enough people out there enjoy them since parks continue to operate and market them. I believe the reason that people like them is because of the thrill and the rush they feel when riding them. Then afterwards, they get off and buy an ice cream bar or a funnel cake.
I think we can liken this market to a roller coaster, and in a good way.
Perhaps you enjoy the thrill of watching the market jump up and down while you plan your next investment move. For a lot of people that’s not the case, but they do look forward to the ice cream or funnel cake they’ll get once they're off the stock market ride. The investment “ice cream” people should look for during this market ride is dividends.
We’ve seen a pretty rough start to the year, but that doesn’t mean you should jump off the ride! If you jump off the ride, you won’t get your ice cream. If you sell your stocks or jump out of the market you won’t get your dividends.
About 400 of the 500 companies in the S&P 500 issue dividends once every three months. That means for each share of stock in that company, the owner receives a small cash payment as a reward for believing in the company and owning the stock. It’s generally a good idea to reinvest those dividends back into the stock that’s paying it.
What you’re effectively doing is being paid to own shares in a corporation and then buying more shares with their money. When we see stock prices drop, you actually have an opportunity to buy more shares of the company at a discount (dollar cost averaging), and you never have to write a check or make a transfer. All you have to do is, well, nothing... including not jumping off the roller coaster.
When we see people buy and sell based on market ups and downs, they usually miss the high point when selling and miss the low point when buying, which generally means that they didn’t gain very much at all by jumping off the ride. And to make matters worse, you miss the dividends while you’re on the sidelines.
Here are a couple of dividend payers:
- AT&T has increased their dividend the last 31 years.
- Chevron has increased their dividend the last 30 years, including this year, despite a rocky 2015.
- American States Water, a water and electric service utility company, increased their dividend for 61 years! Now, their dividend isn’t as high as AT&T’s, but the point here is that despite numerous bear markets, recessions, crises over the last six decades, they have managed to increase their dividend.
Maybe you don’t want to try and pick out a few dividend payers. That’s the beauty of ETFs. You can invest in one product that spans a multitude of individual stocks or bonds.
If you want to talk to someone about your situation and get actionable advice that you can take and implement, shoot us an email at firstname.lastname@example.org to set up a time to chat. You can also sign up as a user and contact your personal strategist. Go check it out and make sure your investments are positioned appropriately for 2016 and beyond.