OK, stocks go down, as witnessed by yesterday’s 700-point drop in the Dow. Does that mean it’s time to panic? Well, that depends on how you’re invested. If you’re with me, as I hope you are, you know that stock market drops are a blessing in disguise to Your Survival Guy. Because when prices are lower, I smile at the better prices I’m getting with reinvested dividends. It’s like real estate.
Imagine you’re a landlord like Your Survival Guy was in his early- to mid-twenties. My multi-family in Marlborough, MA, was a cash-generating machine. Rents would come in every month. I’d pay down the mortgage, increase my equity, and have enough left over to get pizza at Bertucci’s with Becky. When we were married, I used the proceeds from the sale for the down payment on our Newport, RI cottage.
And that’s what you’re doing with dividend-paying stocks. You’re building equity with more shares, or in other words, increased ownership. So don’t be dismayed by lower stock prices. But, believe me, I understand why lower prices are hard to take. I remember how scared I was when I asked my dad how to run my property. He said, “You’ll figure it out.”
And that’s where the safe side of your portfolio comes in. With my dad’s confidence in me, I knew that if I kept the building full, I could make the numbers work month to month. But my fallback was my job at Fidelity Investments, which gave me the peace of mind to cover any shortfalls over the short term. That’s where the “anchor to windward” part of your portfolio comes in. It reduces the panic level. Because when trouble begins to creep in, mistakes are made.
Consider when investors get greedy and think making money is EASY. It’s not. Then the financial disaster of 2008 hits them out of nowhere with only a few percentage points of ownership, levered to the hilt, and they lose it all. It happens all the time.
Action Line: If you find yourself wringing your hands or hanging your head instead of licking your chops because of a lousy swing in the market, then it’s time you rethink how much exposure you can afford. I’m here to help. But only if you’re serious.
E.J. Smith - Your Survival Guy
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