Time In The Market Trumps Timing The Market For The Long-Term Investor

timingIt’s funny. Add just a smidgen of volatility to the stock market and people go crazy.

The last few days of last week proved to be a little volatile for the stock market. Oil prices are at multi-year lows right now. Questions about global growth, China, and Greece continue to dominate headlines.

But does any of this really matter for a long-term investor? 

Not really.

Let’s Keep Perspective

If you look at the S&P 500’s price change over the last five years, it looks almost like a straight line up. The broader market is up almost 84% (before dividends) over that time frame, which is an incredible run coming off of the the financial crisis. As I recently discussed, the broader market appears overvalued right now. Although, many stocks within the market appear to actually be attractively valued.

Moreover, the broader market is down a little over 4% on the year. A correction across the board still hasn’t come to pass – the market is down something like 7% from recent highs. These are very small numbers. So if the recent volatility frightens you, now would be a really good time to figure out whether stocks have a major role to play in your asset allocation. Stocks aren’t for everyone.

Now, when you read headlines like “Stock market endures worst day in 18 months”, it makes sense to keep perspective. I mean we’re talking about a little volatility here in what has otherwise been more than five years of almost relentless increases across the board.

But the short term can be scary, even for a long-term investor. No one knows where the prices of stocks are going to be tomorrow.

But would this foreknowledge be helpful if you could have access to it? We all know timing the market isn’t possible, but what if you could time it? What if you had $20,000 to invest right now, but wanted to make sure you bought in after a major drop (should one occur)?

Turns out it doesn’t make that much of a difference over the long haul…

Black Monday

Black Monday. October 19, 1987.

The Dow Jones Industrial Average fell 22.61% on that one day.

Now that’s volatility.

So let’s say you had that same $20,000 (which would have been worth a lot more) to invest back in 1987. And let’s just say your best friend had a crystal ball. And that crystal ball told you that things were going to get really crazy on October 19.

You could have gone about it a number of ways. You could have invested in the S&P 500 (through a broad-based index fund) immediately after the drop. You could have spread that capital across any number of high-quality stocks that pay and grow dividends (what I’d do and am currently doing). You could have even bet large on one company.

Let’s take a look at what that would have done for you over the following 28 years.

Let’s say you decided to put all $20,000 in the Vanguard 500 Index Fund (VFINX), which is an index fund based on the S&P 500. And let’s say you gave it one day for things to cool off and put all $20K in on October 20, 1987. If we fast-forward to August 21, 2015, you’d have $293,128 sitting there for you. That’s an annualized return of 10.12%. Boy, you’d owe your best friend a lot of money, right?

Not quite.

Compare that to the person who lacked a crystal ball and decided to invest all $20K in VFINX the very Friday before Black Monday, on October 16, 1987. Just imagine the feeling in that person’s stomach when they woke up Monday to find out that their investment just took a major haircut. Well, this is where time in the market comes to save the day.

That same $20K invested in VFINX on October 16, 1987 would currently be worth $245,530. That’s an annualized return of 9.42%.

A difference of almost $50,000 shouldn’t be understated, but what do we see here? We see someone who still did incredibly well. An annualized rate of return still near 10%. While I’m not factoring in taxes or inflation, I also factored in a scenario where someone would invest all of their money all in one day, and that day happened to be the very day before one of the worst stock market crashes in history (the crash has its own name, after all).

But investing all of your money on the very worst day possible is highly, highly unlikely. It’s far more likely and reasonable to assume that you’re dollar cost averaging your way into stocks. And this smooths the results out even more, to the point where timing the market is almost negligible.

Time in the market is more important than timing the market because you have control over time in the market. Meanwhile, you can’t control timing the market. Longer periods of time provide an effect where short-term fluctuations almost disappear. The longer the period, the less short-term fluctuations show up.

And over long periods of time, high-quality dividend growth stocks tend to appreciate at an attractive rate while also growing their dividends well over the rate of inflation, increasing one’s purchasing power. That attractive growth rate over the long term can and does make up for poor short-term timing.

Take a look at Johnson & Johnson (JNJ) using the same dates and capital above. For the person who had access to their friend’s crystal ball, they ended up with an annualized return of 14.14%. That led to an investment worth $795,615. The investor that timed the market horribly but decided to hold on for the long haul and stick to the plan ended up with an annualized return of 13.73% and an investment worth $721,340. This is assuming reinvested dividends.

You can see this play out over and over again with any number of stocks. One would do better if they had access to a crystal ball, but not that much better. And the longer we go, the less it will matter.

The key takeaway here is that one still does incredibly well over the long haul if they stick to the plan, even if they put their capital to work right before major volatility strikes. Buy quality, ignore the noise, reinvest the dividend income.

Dollar Cost Averaging And Spreading Your Capital Around

Now, it’s more likely that you’re going to be investing smaller amounts of money over a longer period of time. You’re likely going to be spreading that capital out across many high-quality companies. And you likely would have been investing both before and after the big drop.

Let’s break that $20K down over the course of a year (using totally random dates) and across 10 different stocks (that were known for their dividend prowess even back then) just to see what happens:

  • $2K invested in The Coca-Cola Co. (KO) on February 2, 1987 would have provided an annualized return of 12.21% and a total investment now worth $53,769.
  • $2K invested in Exxon Mobil Corporation (XOM) on March 25, 1987 would have provided an annualized return of 10.29% and a total investment now worth $32,339.
  • $2K invested in Johnson & Johnson (JNJ) on May 7, 1987 would have provided an annualized return of 10.31% and a total investment now worth $32,195.
  • $2K invested in General Electric Company (GE) on June 29, 1987 would have provided an annualized return of 9.11% and a total investment now worth $23,278.
  • $2K invested in Procter & Gamble Co. (PG) on September 9, 1987 would have provided an annualized return of 11.97% and a total investment now worth $47,227.
  • $2K invested in 3M Co. (MMM) on October 26, 1987 would have provided an annualized return of 11.98% and a total investment worth $46,652.
  • $2K invested in Colgate-Palmolive Company (CL) on December 2, 1987 would have provided an annualized return of 15.25% and a total investment worth $102,512.
  • $2K invested in Consolidated Edison, Inc. (ED) on December 22, 1987 would have provided an annualized return of 10.21% and a total investment worth $29,496.
  • $2K invested in General Motors Corporation (GM) on January 13, 1988 would have resulted in an investment eventually worth $0 (assuming one held all the way to bankruptcy, which would be unlikely; and dividends would have provided some return unless reinvested all the way along, which I’m assuming here).
  • $2K invested in McDonald’s Corporation (MCD) on February 10, 1988 would have resulted in an annualized return of 12.79% and a total investment worth $55,079.

I hate doing backtesting like this because it’s easy to cherry pick certain stocks to make a point. But I think most investors investing the way I do now would be interested in stocks like the ones I listed above even back in 1987 and 1988. Many were part of the DJIA at the time and all of them had some dividend pedigree already. In the end, though, this is purely illustrative.

However, you can see what dollar cost averaging both before and after a major stock market drop looks like when the time frame is drawn out across almost 30 years. The total return across the entire portfolio is pretty outstanding, even factoring in the eventual bankruptcy of the old GM. This portfolio would now be worth $422,547. That’s more than had you invested in the S&P 500 on the day after Black Monday. And that’s assuming 10% of your portfolio eventually became worth nothing.

What I also see here is that quality matters more than anything else. Coca-Cola did very well for shareholders over the last few decades, even for those that bought in not long before Black Monday. But those who may have scored GM at a cheaper price after the crash eventually found themselves in a poor position. So value matters. But quality matters much more.

Conclusion

I don’t often put forth backtesting. I’m more interested in what the journey to financial independence looks like in real-time with real money. But I think it’s important to keep perspective whenever there’s some volatility in the market, and the illustrative examples used above helps further the discussion.

If you’re able to focus on quality, ignore the noise, reinvest your dividends, buy when the value is there, and hold for the long haul, your odds of achieving very satisfactory returns and growing dividend income over the long term are very good. For the long-term investor, time in the market trumps timing the market by a large degree. I take comfort in knowing that I wouldn’t do much better than I’m already going to do, even if I had a crystal ball that told me when the stock market was next going to fall substantially.

So stick to your long-term plan. Ignore the headlines that tell you the sky is falling. Don’t let Mr. Market bully you into making poor choices. Use short-term volatility as a long-term opportunity, because the long term smooths out short-term fluctuations. However, those short-term fluctuations can provide for even better deals on high-quality assets. It might seem scary at the time, but your future you will be in a much better position if you stay focused on time in the market rather than timing the market.

Full Disclosure: Long KO, XOM, JNJ, GE, PG, and MCD.

What do you think? Do you think time in the market matters more than timing the market? Is timing the market – an impossible task – worth the effort?

Thanks for reading.

Photo Credit: cooldesign/FreeDigitalPhotos.net

Edit: Added note about GM dividends. 

Edit: Corrected error. 

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230 Comments

  1. Mantra,

    Perfectly timed post. In one sentence: Continue investing, find the stocks that are undervalued, find the companies that are fundamentally incredible, that we all use every day. Why? The future you will kick the current you right in the ass if you don’t. Thanks Mantra, hope you had a great weekend!

    -Lanny

  2. I do love a sale. This has been a good week for patient investors, and a big drop from here just means more companies on the bargain table. Happy hunting!

  3. Haha great post Jason!

    All I kept hearing from coworkers and people around me last week was how terrible the stock market was performing, as if doomsday were upon us. I was asked multiple times if I wasn’t worried about my portfolio’s value tanking. It seems that no matter how many times I explain how long-term, dividend investing works, the majority of people just don’t get it.

    Oh well, I’ll just keep doing my thing. Times like these are just opportunities to buy high-quality stocks at bargain prices as far as I am concerned.

    Cheers!

  4. Thankyou great post… What do you use to backtest ?

  5. Jason,
    I agree with you completely. Regular investing will smooth out the market. Plus, when your investment strategy is focused on income, then you actually look forward to drops in the market.
    Thanks for your ‘timely’ article.
    D4s

  6. Great article Jason.

    “Time in the market is more important than timing the market because you have control over time in the market.” What a great lesson in one sentence.

    The important part is to have some cash set aside or enough cash generating assets to take advantage of these types of dips. One could say that this is “timing the market” in a way, but I can’t help bet get excited when I see the market down 3% in a day.

    The worse the headlines, the more intrigued I get.

  7. To add to the discussion, the GM investment might have recouped the entire $2K in dividends over the years before it went bankrupt.

  8. Good Day Jason
    I have a rule that panic is not a strategy. So Selling in panic want make you a dime. In times like these I just widen my buy marks, and buy good high quality stocks on the way down. Also I watched DIS its had a big pull back. DIS fell to 96 and change on Friday and then went back up above 98. this on a day that the market had fallen over 500 points. I think DIS is putting in near a bottom. I have thought about adding DIS to my portfolio. A good article Jason that helps put this pull back into some perspective. Take a longer term view and prosper.
    Cheers

  9. Lanny,

    Thanks so much!

    Yeah, I must have received something like 20 emails over the last few days from readers/investors concerned about recent volatility. If the recent drop is scary, then one has to really question whether they have the fortitude necessary to invest in stocks over the long run. Doing my best to show the way. 🙂

    Best regards!

  10. Alex,

    It’s just crazy. A lot of people aren’t cut out for this stuff. And that’s fine. Less competition for our stocks. 🙂

    Keep up the great work over there. The Alex of 2050 is a very wealthy individual.

    Best wishes!

  11. D4s,

    Definitely. I wrote this article with the 20 or so people that have contacted me over the weekend in a panic. But for the rest of us focused on growing income, this recent volatility is nothing more than a long-term opportunity. I think it also shows just how unimportant it is to time your regular investments. It’s totally unnecessary (and impossible) to catch every drop.

    Thanks for adding that!

    Cheers.

  12. RTR,

    Absolutely. The worse it gets, the more excited I become. Though, I think this article highlights that it’s not really all that important to catch those drops just right (something that is impossible anyway). Sticking with the plan over the long run is by far the most important and worthwhile thing you can do. Focus on what you can control. The rest is just noise. 🙂

    Cheers!

  13. Josh,

    Good point. I’ll include a note to reference that. There would have been some positive return there with the dividends, and it would have probably been fairly decent. Although, I’m unaware of any resource that would give a specific/accurate number.

    Thanks for adding that!

    Cheers.

  14. A very timely post. I read posts/comments in several online financial communities and I have been floored by all the recent chatter about the market’s movements. A 5% drop and people are talking about changing their investment strategy!?!? Just keep doing what you’ve been doing all along.

    Thanks for the post. I had been thinking of writing one myself, but you beat me to the punch. Keep up the good work over here!

  15. Michael,

    Thanks so much. Glad you enjoyed the perspective here. 🙂

    That’s all I’m really trying to add to the conversation. Perspective. Not only is it impossible to accurately time the market, but, as we can see here, it’s totally unnecessary. Time in is a far more powerful force than timing.

    Best wishes!

  16. Nice article Jason. This recent pull back has me doing some research for my watch list. I have my eye on adding to BLK, PX, and UTX, in addition to the railroads. I am going to add to my XOM, and CVX also, and actually started limping into more CVX the other day.

    What are your thoughts on BBL? I know you picked up some recently, but any further thoughts on averaging down? I have a small position, but would like to add given it has been beat up so badly. Going to be doing some research over the next few days.

  17. Well said, Mantra. Its time in the market that counts. By any measure, this is not a bloodbath as the media would have you believe. This is barely a correction and we are just coming off of all-time highs. A bit of market correction is good for the overall health of the market. I continue to hold some cash and will be looking to deploy it slowly and not make any knee jerk reactions.

    Happy investing!
    R2R

  18. TBD,

    It boggles the mind, doesn’t it? If this recent volatility (which is really nothing) bothers you, you might want to take a really good look in the mirror and honestly answer whether or not you should be in stocks at all. I received something like 20 emails over the weekend from panicked readers/investors, so I thought it was a good time to discuss exactly how little timing the market matters over the long run.

    Stick to the plan. Ignore the noise. Buy quality at a solid value and reinvest those dividends over a long period of time. The rest is just a waste of time.

    Cheers!

  19. presone,

    Thanks. Hope you found some value in it. 🙂

    Yeah, I wish I would have bought BBL even cheaper than I did, but I’m not unhappy with my cost basis there. And this article just proves out how little it will matter over the next 30 years, assuming that BHP Billiton does what they’re supposed to. But I’m not sure I’ll add any more. It’s probably about as large of a position as I’d like it to be. There are a lot of other stocks out there I’d like to add to the collection at some point – every dollar I use to buy up BBL is one less dollar I can use to buy something else. So I have to think about managing my opportunities. I also have to think about managing risk. We’ll see, though. I’m not saying I won’t buy any more, but it’s unlikely.

    Best wishes!

  20. R2R,

    Indeed. This isn’t a correction at all. It’d have to be at least 10% to hit that definition, and that’s, as you said, coming off of all-time highs. So one has to think about relativity there. If we see it drop some 20% or 30% from here, that’d be exciting. 🙂

    I just continue to stick to the plan, turning cash into growing cash flow. I trade cash for equity in high-quality companies that are so increasingly profitable they can pay and grow dividends for years/decades in a row. It’s a trade that is so incredibly in my favor.

    Let’s keep it rolling!

    Cheers.

  21. Very timely and good article.

    I want to reiterate my comment from last post where I miss represent selling low quality stocks and trading for higher quality one when you run out of capital during down market.

    First of all I hold 50 stocks and 35 of them are similar to yours.

    Now for example I bought COP during 2010 when it was integrated oil company but they spin off their refinery business to Philips 66 so it’s not the same company anymore.

    Second example is I bought VOD back in 2010 when it was selling for much cheaper and they still had stake in Verizon wireless business but now they sold their wireless business to Verizon.

    I don’t sell stocks that often. I am a 90% buy and hold, but if you run out of capital and market still going down does it make sance to trade your COP for XOM if XOM is yielding 4.5% and also does it make sance to trade your VOD for VZ if it yields over 5% (they have increase coming soon).?

    I would like to know your through in this thinking.

  22. DM,

    Great article here. Backtesting is perfectly appropriate in this scenario because as you mentioned, you are assessing the performance of a strategy that resembles yours in the past. I would love to have that $20k strategy and it is perfectly reasonable that you would put that in the market in times like this. Now, if you talked about looking in a crystal ball to invest $20k in Super Bowl winners, that would be a different story. But why not use the information available and our past to develop a strategy for all future downfalls.

    As Lanny and others have stated in the comments section, the moral of the story is to invest, invest, and invest in these situations. We pick strong companies that have withstood these periods before, so take advantage of the downturn to lower your cost basis or establish a new position in these great DGI companies. You can’t go wrong. People get too caught up in the short term noise and are prone to losing sight of the end goal, which is financial freedom. Thanks for taking the time to put this article together, because these are the kind of articles that people need to read and get motivated during the turbulent times.

    Have a great Sunday!

    Bert

  23. Indeed, a lower price is better than a higher price (when buying), but value always has to be higher than price.

    I’m just SO HAPPY to see so many stocks on my watchlist finally correcting. CAT, UTX, XOM, BLK, DIS, UNP, DD, ADM, PG, NKE, and SLB have all corrected from 10 to 30%+ in 2015. I’d love to have another few thousand lying around, but also couldn’t even choose! So many to pick that I don’t own at all, and quite a few that I do currently hold also have reached a good adding range.

    I’m in the middle of renovating a rental I own, so cash will be a bit tight until that’s done and it’s back on the market for a new tenant, but I suppose I’ll just have to hang out and hope there’s still some good values in maybe 6 months. Looking forward to shopping, and I’ll keep adding to my list in that time!

  24. I was curious if we would be hearing something from you on last weeks movements. I almost made some purchases on Friday, but I’m anticipating more movements that may be favorable to buyers. It’s funny, these day it’s only when the market is trending down that I become interested.

    The Stoic

  25. Great post, Jason! It’s nice to see the numbers show that time in the market trumps market timing. Another benefit of DCAing into the market is that its so automatic you just stop thinking about it and it doesn’t affect you emotionally. I just invest whenever I have cash available to invest and my 401k gets invested in every 2 weeks when I get paid. Nice and simple.

  26. AJ,

    Yeah, that’s a tough call. I would only say that I don’t suggest selling stocks purely for the purpose of raising capital in a falling (or rising) market so as to then have capital for other stocks. That’s a form of trading, in my view. And who’s to say which stock is going to do better than another? Moreover, that sounds like just a way to satisfy one’s need to continue buying stocks. Sometimes inaction isn’t a bad thing. And, like the article points out, you don’t really need to catch any bottoms, so I don’t see the need to constantly maneuver around. That’s increasing taxes and fees with potentially nothing gained.

    I would only suggest selling VOD and/or COP because you honestly just don’t believe in their prospects over the long term. It would just be a situation where the fundamentals don’t line up with what you’re looking for. It would be a conviction call.

    That said, I wouldn’t be surprised to see COP’s dividend change here at some point. It was probably a mistake for them to not rebase/right-size their dividend after the PSX spin-off. That was a major part of the business to spin-off while still paying out a hefty dividend. That wouldn’t be the worse thing in the world for the firm, and I wouldn’t necessarily disagree with them doing that.

    Hope that helps!

    Cheers.

  27. Bert,

    Thanks! Glad you enjoyed it.

    Yeah, it’s really just a matter of sticking to your long-term plan. It doesn’t matter if you catch any bottoms or not; it doesn’t matter if you put a bunch of capital to work right before things fall off a cliff. As long as you stick with it for the long haul and don’t make any unintelligent moves, you’ll be fine. It’s traders and short-term investors that have something to be worried about when volatility hits. For the rest of us, it’s nothing but an opportunity. 🙂

    Thanks for stopping by!

    Best regards.

  28. Ravi,

    I’m with you. I hope it continues on like this for a while longer. Although it makes little difference over the long run, every additional dividend dollar I can buy puts me that much closer to financial independence. 🙂

    Best of luck with the renovation over there. Stocks aren’t going anywhere, though. There’ll be plenty around when your capital is replenished.

    Thanks for dropping by!

    Cheers.

  29. The Stoic,

    Yeah, it’s tough for me to address things like this because I just don’t think about the volatility much. For me, I see red as green and green as red. So it strikes me as strange when I receive a couple dozen emails over the weekend from people that are panicking. But this gives me an opportunity to try and share my mindset with anyone who’s interested. 🙂

    Thanks for stopping by, bud. Hope all is well!

    Best wishes.

  30. Dave,

    Simple is beautiful. Successful investing is just not complicated. You’re doing a great thing over there. Just invest the cash whenever you have it. I do something very, very similar.

    Glad the numbers help. I think comparing the S&P 500 (apples to apples) both before and after a big drop like that is pretty insightful. You’d think it would make this massive difference in your long-term returns, but it really doesn’t. I remember coming across some data on investing in American Express right before the salad oil scandal, and I think the long-term returns were pretty similar to what Buffett experienced (who went heavy after the scandal). Deals are wonderful, don’t get me wrong. But the key is staying invested for a long period of time and focusing on quality.

    Take care!

  31. Awesome reminders Jason!
    After taking an early retirement last year and having my rollovers sitting in cash (because I thought the market was too inflated), I finally started executing my dividend investment plan in June, incrementally investing each month over the next year or so in high-quality div stocks at attractive valuations. With the recent dips, I was pondering whether to jump “all in” or pull back and slow my new investments. Thanks for reminding me to just stay-the-course, it will all average out over time! Meanwhile, the dividends will pay me better and more reliably than most other investments. Thanks for all the great information your blog has provided!

    Lynne

  32. Dividend Mantra,

    Excellent article. I am just riding out the “storm”. Some of my stocks are up and some are down. If my stock goes way down from were I bought it, it means my entry point was too high. Every stock has its price go up and down, but over the long term the stocks pays dividend and will increase those dividends from time to time.

    As Warren Buffett says, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”. Stocks are going to go up an down in the short term. If an investor buys recession proof stocks, then these stocks are going to do very well over time.

  33. As an investor, I have been picking up a lot of beans and rice, peanut butter, cans of tuna and frozen veggies. . . Time to SUPERCHARGE the savings rate to raise more capital! No more eating out, no more splurges, or expensive booze. I hope the market stays down for a couple of months so I can pick up some great stocks like DIS, BLK, PH, and my last buys in UNP, CMI, and KMI. . . I will be buckling down and putting all my cash to work, baby! (and probably can get a bit healthy with it by cutting out the bad and riding the bike to work for a couple months) IT’S GO TIME!

  34. Lynne,

    Thanks for the support. Much appreciated!

    Enjoy your early retirement. That’s what we’re all fighting for. Have fun over there incrementally investing that cash. Life is good. 🙂

    Cheers.

  35. IP,

    Definitely. Buffett’s words of wisdom have no expiration date. Just as wise now as they ever were. If you don’t know what to do when a stock drops by 10% or 20%, then there’s a chance you didn’t know what you were doing right from the start.

    Let’s hope for more volatility. 🙂

    Best regards.

  36. Daniel,

    Ha! I hear you, my friend. I’ve been super fortunate to keep my savings rate over that 70% mark lately, which has really helped quench my thirst for stocks. Freedom isn’t going to buy itself, right? 🙂

    Keep it up!

    Cheers.

  37. Loved this article, Jason. I’m still amazed at how fast compounding works like that, and it seems we can’t screw up too badly if we pick even just a few of the right stocks to hold on to. There are so many sales lately and I’ve been buying 🙂 I hope we get more noise in the coming weeks and months. Happy investing my friend!

  38. Ryan,

    Definitely, my friend. Compounding is so amazing. The odds are stacked incredibly in our favor. It’s so hard to screw up unless you really, really want to. But if you’re halfway intelligent about it, you can’t help but to do pretty well over the long run. 🙂

    Let’s indeed hope for more volatility!

    Best wishes.

  39. Hey Jason. Thanks for the awesome article. I chuckle when I hear the news and they always over blow it. I watch BNN quite often and they always “exaggerate” to scare the viewers.
    Yeah, we had a bit of a pullback but it’s opportunity knocking for us investors. Buy when there is trouble… It’s definitely exciting.
    All I can say is that our real problem is not having enough capital as always to deploy in awesome companies. It’s a first world problem. 🙂
    Thank you for showing many of us the way bud. I appreciate your work and wish the best for us and our journey.
    Take care Jason.

  40. Thank you for making this awesome post. I recently invested in gilead after reading your posts . Two weeks later, the market dropped and so did the rest of my portfolio. I kept blaming myself for being impatient and should have waited but there’s no way I would have known. Reading this post made me feel a lot better. Thank you so much

  41. Tyler,

    I guess that’s a journalist’s job, right? Exaggeration/drama brings the viewers. Fortunately, this is a drama-free zone. 🙂

    The recent volatility is just a microcosm of what we’ve all been asking for. So it always perplexes me when some investors then aren’t real sure what to do when it finally hits. Just stick to the plan…

    Lacking enough capital to take advantage of every opportunity out there is definitely a great first world problem to have. We’re fortunate!

    Thanks for stopping by.

    Best regards.

  42. great post again jason. In the past, I would have this sick feeling in my stomach, watching my scottrade balance drop. However these days, that sickening feeling is not as bad; in fact, I’m licking my chops and bought appl and cvx! I haven’t seen cvx this cheap in a long time!

    I think the the media is fanning the flames on this issue, because everyone will want to “tune in” on the gloom and doom. I agree though that the market was a bit overvalued and this “correction” was coming. It may even correct even more… but if you see the value now in these companies; some of them are dirt cheap. I remember back in 2008, when the market tanked. Citibank was trading for under a buck. BAC was $3 or so and GE was $6. I didn’t buy any back then, because the media had done such a sensational job of the catastrophe that was about to come.

    Lesson learned. Although a further correction may be in store, I believe in these companies and their long term value. I just wished I had more cash to invest.

    take care.

    j

  43. j,

    Thanks. Glad you found some value in it and enjoyed it. 🙂

    It’s funny, but I remember thinking back in 2009 that I should be investing in these stocks. I felt like I was missing this incredible opportunity. But I just didn’t know what I was looking at. And I lacked capital, having been recently fired. It was then off to Florida and everything else, so I don’t have any regrets. But how nice it would have been to score some high-quality stocks at once-in-a-lifetime values back then.

    Either way, it’s okay, though. These numbers just prove out that it doesn’t matter all that much over a really long period of time. Maybe I’ll run these numbers again in 10 or 20 years just to see how much closer the results are.

    I’m with you on wishing I had more cash. Just one of those things. Never enough capital for an asset accumulator, but it’s a great problem to have!

    Thanks for the support. Keep it up over there!

    Cheers.

  44. Thank you Jason! It´s wonderful article at the correct time!

    Certainly, traders feel bad, holders with speculative portfolios and very limited time horizon feel bad. Those kind of people are targeted by media frenzy of boodbath etc. .

    Experiencing a sharp drop like this I do remember my emotional state of mind prior to DGI … comparable to traders desrcibed above. Right now I do not feel adressed by this media hype. Two reasons: (1) quality and proven strength in portfolio and (2) no intention of selling anyway.

    Thanks to my income/dividend cash flow I will constantly reinvest in quality and proven strength anyway. You pointed it out several times in other articles: It´s a sale going on.

    My only problem: far too many super quality opportunities jump at me and scream: “buy me”.

    … open a new position with PEP or UNP…. add up on XOM or TROW or EMR or BBL or GIS … here I do have to check up on my portfolio management … again you stated it here and there: nice first world problems.

    Have fun on your shopping spree and keep us informed!

    Best wishes
    Thorsten

  45. Great points Jason!

    It is all about seeing the big picture over the long haul. Slow and steady cost avaraging, and buying when value is there is the way to go.

    Since I started my journy in april, I have taken a big hit already but it dosen’t effect me much as I don’t have the crystal ball, only thing I can do is sit back and cost avarage my way into the different stocks when money is there.

    Time in the market is what I know works, just let the time do its thing 🙂

    Thanks for a good post!

    Stay in touch
    Dividend Freedom

  46. Hi Jason,

    I really liked that article. I was getting bummed out that I don’t have any more capital to invest as the market continues to drop so the analogy of buying just before or just after Black Monday was a good one. In the long run it won’t matter much whether I bought JNJ at $100 and missed out on jumping in at $95. My goal of growing dividend income has been all encompassing so hopefully the market stays depressed for a few months. History would suggest otherwise, as it’s more like a bucking bronco.

    -Mike

  47. Hey Jason,

    thx for reminding all of us that we need to focus on the long term. Parts of me want to quit, the other parts tell me to stay and look at my long term goal. after all, it is still 15 years away before I plan to FIRE, after that, I hope to add another 35-45 year! So, I can thick the box next to the long term view I need to keep in mind

  48. Great post Jason. Even I know valitility is the nature of stock market, I still feel uncomfortable seeing my portfolio balance drop. After reading your article, I feel much much better. I will still stick to my original plan and become a mature and wealthy dividend growth investor.

    Cheers,

    Joseph

  49. Nice post Jason! Long time lurker, first time poster here, I agree, the volatility would have been concerning to the me of a few years ago, when i didn’t understand much in the stockmarket, and was a speculative investor at best, like the Aussie headlines today marking 60b wiped off the ASX 200 , but it’s going to happen from time to time. But now I am only concerned because I don’t have more access to capital to average down on more of my investments! 🙂

    Cheers

    Adam

  50. Jason, your article was both comforting and disappointing!

    Comforting in confirming that timing does not matter that much in the long run but disappointing as well.

    I try to keep my investing as simple as possible:
    1) Analyse companies in the watch list,
    2) invest in selected company with good metrics (dividend yield, growth, diversification etc).
    3) Repeat on monthly basis for decades

    Frankly, I do not find this very exciting, it is more like watching grass grow or paint dry. I guess that is how any good long term investing should be.

    However, times like these, i.e. market corrections are when I do get excited because of possibility of finding future dividends at real discount. There is nothing like buying 100 dollar bill at 40 – 60 dollars. These are the times when I try to secure more cash, postpone nonessential acquisitions, perhaps using margin to acquire more shares. The excitement is best seen in the fact that I remember vividly all my 2009 and 2011 investments, but have hard time remembering the rest.

    And now I found out that in 20 years time the effect of my efforts is quite minimal in the grand scale! Hence the disappointment.

    Best regards,

    Teo

    PS. I appreciate all your posts, but this might be one of the most important ones. There are many rookies around who have not experienced large market corrections (or crashes). Even dividend investors are usually following two metrics; dividend income and value the portfolio. These are the times when voice of the sanity is needed to tell that decrease in the value of the existing portfolio creates new value in the form of larger dividends via new purchases. The key is to keep calm and continue investing!

  51. great article DM.
    My portfolio value is down about 20% from its peak in May.
    My dividend income has increased 16% this quarter, and with 4 months of the year to go I had equalled last years dividend income and am well primed to increase annual divs by about 20% YoY. Ha! Dividends are real money I can spend, share prices are the figure that the auctioneer can sell the asset for at that particular moment. Im not selling so it is meaningless. Focus on the dividends and tune out the noise.
    best wishes

  52. Zeros to Zeros, I know exactly what you mean:

    Coworkers, friends, relatives and not a single one who understands what I mean with “Portfolio made of CCCs” (explained that fruitlessly), “BuyAndHold”, “constant DividendStream”, “Speculation vs Investment” etc. etc. . All I hear is “but the value”, “what if I want to sell”, “too risky” … They all have plenty of capital to invest, but it sits in 0% accounts while all the time they complain. Am I that bad when it comes to explaining?!

    Nice to hear your experience which seems parallel.

    I give up!

    All the more I do admire Jason´s work here: his style, his approach; it´s like a torch shining in the dark night!

  53. @DH, you’d be better served not watching BNN and/or having it on but putting it on mute. It serves no purpose at all.

  54. Hi Jason, I agree with your comments. I actually backtested buying and holding SPY from July 98 (buying right before the 99 peak) through Jan 15 including reinvested dividends, buying in equal $100 monthly chunks along the way. The return came out to something in the range of 8% annualized. Not bad for a passive buy and hold strategy.

    The bad news is that at the troughs of the 01-02 and the 08-09 bears, there were draw downs of close to 30% each time. The 01-02 draw down wouldn’t have mattered much because the capital invested from July 98 through 01-02 only amounted to something like $4,800, so the $4,800 becomes $2,880 (assuming no growth).

    The bigger draw down is 08-09, because you have 10 years of capital contributions in the market plus reinvested dividends and capital appreciation up to the summer of 08 and then a 50% move down in SPY due to the crisis. So in this case, all that capital working for you for 10 years basically evaporates down to initial starting capital getting back to where you started in 98.

    So temperament is critical in dealing with all of this as it unfolds.

  55. Hi Jason,

    Thanks for writing this! Perfect timing!

    As is stated many times above, stay for the long haul, try your best to ignore all of the “noise”, and put any capital to work for the best values. We are starting to see some very nice values show their heads here.

    Opportunity knocks! Stay the course and do not panic!

    I have a feeling this will be a “wild ride” week.

    Best regards,

    Ray

  56. I agree Jason. EVERYONE….STAY THE COURSE! In 1987 I was a young soldier in the Army and a Staff Sergeant came running into my work area babbling he just lost $25,000. I sure hope he didn’t sell. The 1987, 1991, 2001, 2008 crashes are now just blips on the screen. The real winners are those who bought and held and re-invested dividends. I have cash on the sidelines and plan to average into the market with $5k – 7K per month over the next 12 – 18 months and then after that with 1k – 3k per month.
    I do like the suggestion someone mentioned above about selling weaker companies for stronger companies provided they yield close to the same dividend. It’s wise to review a large portfolio every so often…but hands off as much as possible.

  57. I used to wish I was smart enough to have bought Cisco in 1990
    Now I wish I was as smart as Mr. Fieber is now in 1990.
    investing is slow, steady, prudent – its not a lottery

  58. First comment, although I’ve been reading your blog for years, and have always wondered what you’ll do when it gets rough. I held through 2008 and watched tons of unrealized gains disappear and dividends reduced. I think, you may get an opportunity over the next few months to really test your strategy and resolve since you haven’t been in through a real bear market. Best of luck to you, I’ll be following

  59. Really great post Jason! As many are clouded by the so called noise that they lost money and should abandon the ship before the ship sink. They tend to forget that rarely any ships sink due to short term volatility. The current period right now serves more as an opportunity rather than a risk. I especially liked how you added the calculations showing that even if you got in the game in less than perfect situation it would still not matter that much to the long term investor.

    Best of luck shopping!

  60. Well looks like today isn’t a Black Monday, but it is very grey! While your emotions may want you to get excited, I’m definitely staying the course. That might mean not checking my account balances for a few days though, because why get riled up about something you can’t control and can’t time. I’ll just continue to earn and save, and continue on with my very long-term investment strategy.

  61. DM-

    With the recent correction in the market, are you planning to pick any new stocks or add to your existing positions?

  62. Great article, Jason! There’s not much I can add, other than a market correction isn’t something to fear, but to celebrate! I’m watching a number of great companies go down in price, and some of them (such as 3M) are now at a price where I would consider buying them. Actually, MMM is at 138 at this very moment. Better to buy it there than at its 52 week high of 172.

    So to everybody who is panicking, don’t. Great businesses are on sale right now. You may not have an opportunity like this again for many years. For me, the only fear I have is not having enough capital to fully take advantage.

    Could you imagine if this happened during your buying spree in June, Jason? You would have probably been able to shave a year off your journey.

    Here’s hoping for a lengthy correction!

    Sincerely,
    ARB–Angry Retail Banker

  63. Im in a bit of a conundrum – as mentioned I just quit my job – so I have a desire to build up a little bit more of extra cash – just to be safe, but just as luck would have it stocks are starting to go on sale. I might have to buy a little here and there despite myself.

    I don’t even know where to start. I may add to some more positions that I like or if things go down hard then maybe even open up position on some stocks that have been too expensive for me. For my dividend portfolio, I’d love to get into SBUX or PEP if they come down a lot more./

    Do you have any stocks you’re looking to get into if the prices come down further?

  64. Jason,

    I’ve said that phrase “time in, not timing the market” at least 5 times this weekend. People do give a little bit of a sideways look to the phrase, like a dog turning its head in a moment of curiosity when it discovers their new toy can squeak.

    Monday continues to be the same, yes my stock values are dropping, but all that is doing is opening the door for me.

    – Gremliin

  65. I agree that time is generally more important than timing … except at the beginning of the Great Depression. So I’m a little afraid to invest during bubbles. Your plan of making sure to only buy things that are at least good values (if not great) helps mitigate that fear–you generally don’t buy into bubbles.

  66. I´m really desperate. The market is falling and there are so many opportunities that I can´t decide what to buy. And I don´t have enough money for this….

    No, I think we have a correction of the market and may be it will take its time. Its absolutly normal that we sometimes have falling markets. If you are a long term investor its a good chance to get some shares at a better price.

    Very interesting was the calculation if you bought the shares just before the crash 1987 and just behind. I didn´t do that calculation and I am really suprised that the difference is not that large. That is really new for me and I have learned that even a difference of 20% pricing is not that important if you hold the shares for 30 years. And you are right: At 1987 the mentioned companies where in most of the depots like today. No big changes. I have more of the half of the companies and I would like to own most of the missing today as well.

  67. Hey Jason!

    After having read your great article again two points occured:

    (1) In your example above you invested $20.000, but you wrote:
    “A difference of almost $50,000 (the amount of the original investment)” … small print.

    (2) Far more important: your wonderful example is an appropriate support for your thesis “Cash Flow Is Cash, But Better” ! At the moment I am sort of frustrated due to the lack of cash, but both articles sort of worked wonders: In the long it does not matter. I will stay in the market and stubbornly keep on using my dividend cash flow/income to reinvest in CCCs.

    Both entries, this one and the one about cash are worth real money, you may think of selling them!!

    Helpful in the extreme!

    So, what do you: Add up, open new position …. your next RecentBuy will be expected!

    All the BEST
    Thorsten

  68. Do you invest in a 401k, or do they not meet your timeline of FI since it is a long-term vehicle?

  69. Excellent perspective. Time for most of us to do a whole lot of nothing!

    I did manage to snap $20k worth of ETFs that appeared to have “flash crashed” and made an instant 20-30% profit so far (haven’t sold them yet due to FINRA rules my household has to follow). Otherwise, volatility is best ignored.

  70. Great timing on the article – especially in stating that the market is over valued at the moment. I’m big into value investing and look at this as a great opportunity. At market peaks, the economic cycle is still gaining strength and it feels as though most economies world wide have not quite hit their stride yet. I see best of breed companies in energy and commodities rallying big time in the coming years.

    Today was close to another “Black Monday” – but it could be a huge opportunity for the astute value investor!

    -DP

  71. Nice timing on your article: It is helping me take comfort in the plunge in my Personal Capital net-worth number. But, things are on sale, so it is a good time to buy those beautiful dividend stocks — got 15 shares CAT this morning for $72.00 a share to finish up my position. Thanks Jason!

  72. it’s funny how nobody is talking about protecting/hedging your portfolio, many dividend growth investors don’t seem to care much about protection, most sit on very low cash, but if in fact China were to collapse and market erased 2/3 of the value, I could see how many international exposed companies could be forced to cut dividends. I’m not here to spread fear, but these are some very valid points nobody is willing to talk about. Cheers.

  73. Don´t you think that CCCs, especially Champions and Contenders have seen much, much worse in theirs decades of uninterrupted dividend growth?? Watch fundamentals of your CCC crowd and there is no need for hedging.

    IMHO

    Best investment
    Thorsten

  74. Jason
    The folks that are relatively new to investing really needed to read your article.
    Well done, thanks for taking the time to write it.
    Best advice , turn off the television, those people thrive on sensationalism.

    My advice to everyone…Do something productive.. clean the garage, like I’m doing.
    Take care.

  75. If that happened and the stock market lost 2/3 of its value, companies are sitting on so much cash quite a few could literally buy all their stock at the market and go private.

    In the case of DGI, the dividends are the hedge.

  76. Though I admit to putting a little more money in the market over the last couple of days than I ordinarily would, I largely don’t worry about timing. I don’t try to “beat the market”, because that’s a game that you generally won’t win – and even if you do win here and there, it’s basically all dumb luck. Market forces are as fluid as anything in this world, and trying to predict the market is analogous to spitting into the wind.

    I am a long term investor, through and through. Sure, we may have lost tens of thousands in the last couple days, but it makes very little difference to me. It’ll rebound and we’ll be sitting pretty again.

    It happens.

  77. What an article and the timing is perfect 🙂
    Indian Markets to crashed…had a good time in finding value 🙂

    Excellent back testing !!! Great to know that the difference is very minor when we compare investments made weeks apart 🙂

    HAPPY HUNTING!!! Let our BB GUN stay loaded as soon as CASH is deployed.

  78. Agree 100% Jason. However (there’s always an however), it’s always nice to have some dry powder to buy more of your favorite companies. I’ve been waiting over a year to add to positions in WFC, MMM, and CL. I feel I now have the prices I like, and I’m saving more in the purchase price than the div’s I missed.

    The only problem, for me, is that many other companies are also meeting my target range as well. Some are much better values than the three mentioned. Do I buy more of great companies at a good price (even if they are not as great as they once were), or buy more of pretty darn good companies at a greater price (ITC, MMP, DE, GE). Or buy more of XOM or CVX whose prices are great, but I own too much in the sector already, or in XOM individually, even those these might be once in a lifetime prices. (Of course, energy might take years to come back. It will eventually. When it does today’s prices, IMO, will seem really cheap). Choices. Choices.

    Oh, and I’ve wanted to own more MKC since their moat is so great and they are so predictable, but the price is just fair, bordering on good. No close, IMO, to great.

    Really could use an extra 50k right now:)

  79. Thorsten,

    Glad you enjoyed it. 🙂

    You’re right in that it definitely depends on your perspective and time horizon. For short-term traders, an uptick in volatility like this might not be all that great. However, for long-term investors still accumulating assets, this kind of stuff is exactly what you should be hoping for.

    I hear you on having too many companies to buy. That’s always a problem, almost irrespective of market conditions. I’ve amassed a really nice collection of businesses now, but it’s taken years. Meanwhile, I know that I’ve got another few years of investing left in me, so there is another basket of stocks that I’ll eventually own. Slow and steady wins the race.

    Keep it up!

    Cheers.

  80. DF,

    Definitely. Slow and steady is where it’s at. A massive portfolio spitting out thousands of dollars in dividends every month doesn’t get built overnight. As such, you’ll experience all kinds of market conditions while you build that thing out.

    Since you just recently started, you’re in even better shape than those that have been doing this for a while. Your portfolio value in absolute terms won’t swing that much. Meanwhile, you now have even better opportunities for new capital. That’s a win-win. 🙂

    Thanks for dropping by!

    Best regards.

  81. Mike,

    Yeah, I love seeing the numbers play out over 30 years like this. Just proves that nailing every dip on every stock isn’t even close to necessary, even if it were possible. If you average your way into high-quality stocks, you almost can’t help but do well.

    And although this article was focused on total returns since it was the easiest way for me to quantify the results, we’re all focused on the growing dividend income. And that generally isn’t affected by volatility like this, so it’s really all gravy for us. 🙂

    Thanks for dropping by!

    Take care.

  82. This is a very timely article. I’m having fun watching all the people running around with their heads chopped off. Investors like you and me actually thrive in this kind of environment because it’s when quality companies can be head on the cheap!

  83. ambertreeleaves,

    You really have to be focused on the long term. If you look at stocks with a time frame of a year or two, you’re asking for a lot of heartache.

    Best of luck staying the course over there. 🙂

    Cheers!

  84. Joseph,

    I guess I’m wired differently, but I love seeing the portfolio value drop. I don’t lose money unless I sell. And since I rarely sell, I’m not losing anything at all. Meanwhile, my current capital can go that much further. For me, green is red and red is green. 🙂

    Stick with it over there.

    Best wishes.

  85. Adam,

    I can imagine this kind of stuff is scary if you don’t have a long-term view on things. And focusing on the growing dividend income/passive cash flow makes it even easier to stay patient and keep investing. But that’s just one more reason this strategy (dividend growth investing) is so robust and effective. 🙂

    I hear you on not having enough capital. But I suppose, unless you have $100k sitting around at all times, that will always be a problem. Like we see with the numbers above, nailing the lows won’t really matter all that much. Slow and steady…

    Best regards!

  86. Teo,

    Sorry to disappoint you. 🙂

    I don’t think that your efforts have provided minimal effect. And I don’t think value doesn’t matter. Value absolutely matters. But I think quality matters more than value. I’d rather pay a fair or even slightly expensive price for a high-quality asset versus getting a crazy deal on junk. And I think the results up here show how that works out. The problem is that sometimes quality is only known in hindsight. But that’s where your hard work comes into play. You’re spending the time analyzing companies, getting solid deals, and minimizing your risk by focusing on the quality. That way you avoid those zeros like GM provided in the results above.

    Appreciate the support. Glad the article provided some perspective. I just think that many investors assume you have to nail bottoms and time the market to do well, and it’s really just not true. In fact, the delta between those that time well and those that don’t is really quite minimal over a long period of time. So it also depends on your time horizon. If I were, say, 60 years old, this recent volatility might not be so exciting.

    Stay in touch!

    Best regards.

  87. DF UK,

    Yeah, I love the juxtaposition between growing dividend income and an oscillating (and recently falling) portfolio value. Just goes to show why focusing on growing dividend income insofar as living off of that and becoming financially independent is so much better than relying on selling off stocks. The last thing I’d want to worry about when living and loving life is a portfolio value swinging around heavily.

    Thanks for dropping by!

    Cheers.

  88. Dan,

    Temperament is indeed critical. As is the time frame in question. The longer you go out, the less the short-term fluctuations matter. That’s one reason I didn’t use the dot-com crash: it was too recent. But I imagine the results for that backtesting you did will show even less of a difference between timing and time in if you were to check it again in 15 years. Just one more reason to be a long-term investor. Time really is on your side when it comes to compounding. 🙂

    Best regards!

  89. Ray,

    I can time articles better than the stock market. 🙂

    I actually didn’t plan on writing anything like this, but the couple dozen emails I received over the last few days seemed to indicate that there was a need for some perspective. I guess it’s just strange to me that so many people would ask for volatility and then panic when it finally arrives. Just doing my best to be a voice of reason.

    Let’s hope it’s a very wild ride over the next week, month, and year. Keeping my fingers crossed that this is just the start of something really wonderful.

    Best wishes!

  90. Steve,

    Absolutely. Stay the course.

    The 1987 drop is indeed now a blip on the radar. If you pull up a 40-year chart of the S&P 500, you can barely even spot it now. But if you were investing back in 1987 or 1988, you’d sure know exactly where the drop was. But time tends to heal all wounds.

    Sounds like you’re in a great spot there in regards to capital deployment. $5k to $7k per month will surely grow that passive dividend income significantly over the next year or so. Have fun shopping over there!

    Take care.

  91. fresno,

    Thanks so much. Doing my best to provide reason and perspective. 🙂

    You’re right. This strategy (and investing in general) isn’t a get-rich-quick scheme. But you will become quite wealthy over time. This framework provides for an almost bulletproof strategy to become financially independent relatively young (if you start young). Some people always want more… faster… better. And those people will likely continually be disappointed.

    Cheers!

  92. Buy and hold,

    Yeah, I’m also excited to see how things go if the market drops rather substantially from here. So far, this volatility isn’t really much to write home about. But it’ll be interesting to see how the strategy plays out if things get kind of crazy. Stick around and we’ll find out together. 🙂

    Take care.

  93. DV,

    Can’t argue with numbers, right?

    I love running the calculations here because it just goes to show that timing the market almost doesn’t even matter. I mean, you’d do better, but not that much better. Not as much as you might think. And that’s why it’s so important to just stick to the plan, slowly and steadily accumulating high-quality dividend growth stocks at solid values. You almost can’t lose.

    Thanks for dropping by. Let’s hope for even more volatility/opportunities. 🙂

    Best wishes.

  94. FF,

    See, I’d call Black Monday Green Monday. That’s the time to make even more money. Although, like I pointed out, not that much more.

    Hoping this is just the start of something really wonderful. This is what we’ve all been asking for. Funny how the same people who ask for it then get scared when it arrives. Doing my best to provide some perspective there. 🙂

    Cheers!

  95. ARB,

    “There’s not much I can add, other than a market correction isn’t something to fear, but to celebrate!”

    Absolutely. That’s why I just mentioned that I’d refer to Black Monday as Green Monday. I see red as green and green as red. People tend to cheer cheaper prices until it’s on the stocks they’re buying. Very strange. I can see one not being all that happy if they’re no longer accumulating assets, although even then you should cheer increasingly beneficial buybacks.

    “Could you imagine if this happened during your buying spree in June, Jason? You would have probably been able to shave a year off your journey.”

    Actually, it wouldn’t have made much of a difference at all, like the calculations show. I’d need to increase my dividend income by about $1,500 to shave a year off, and stocks would have to become almost free for that kind of improvement to happen. I would have to acquire 20%+ yields across the board. If we start seeing 20%+ yields on high-quality stocks, I’ll have to figure out how to raise even more capital. 🙂

    Let’s hope for that lengthy correction. Another 10% drop from here would be the start of something pretty nice.

    Cheers!

  96. dzogen,

    Yeah, that’s a problem that I think we all have all the time. Always more stocks than capital. That’s something we all talk about quite a bit. The problem is just exacerbated when stocks across the board drop, bringing more opportunities into view. But it’s still a pretty good problem to have. 🙂

    My watch list isn’t likely to change much here. I just finished building up a position in UNP, so that’s off the list now. DIS is one I might add a little more too. I think a lot of the value still resides in the Industrials sector. Some energy plays are getting stupid cheap as well. Hopefully, I’ll have enough for four purchases next month. We’ll see!

    Cheers.

  97. Gremlin,

    I hear you. I’ve received a flood of emails over the last few days. It’s truly perplexing to me. It’s almost like some people don’t read the blog. I mean no offense by that, but there becomes a point where one really has to question whether stocks are right for them. And sometimes I have to be the bad guy that delivers the news that, no, a heavy allocation to stocks isn’t right for everyone (or even most people). Unfortunately, too many people find that out at the wrong time.

    I hear you on the door opening. The wider the opening, the better. 🙂

    Cheers!

  98. Debbie,

    Yeah, the Great Depression is a tough nut to crack. Although, I think someone averaging their way in before and after would have been okay. But it was just a very different stock market back then. The 1987 crash was really the best target for the comparison because the market hasn’t changed much, yet almost 30 years is a long enough time period to run the comparisons. And we can see that timing the market isn’t only unnecessary (not to mention impossible), but will make very little difference over the long term.

    The market doubles something like every seven or eight years. If you’re too busy hopping in and hopping out, you’re going to miss a really great ride.

    Cheers!

  99. Oliver,

    Corrections aren’t only normal, they’re healthy for the market. We haven’t had one in a while, so we’re definitely due now. And, like I’ve mentioned over and over and over again, the longer we go without one, the harsher it’s likely to be when it finally arrives. But I’m hoping for harsh… very harsh. 🙂

    I’m glad the calculation provided some value your way. I believe a lot of people would assume there would be this massive difference in returns, but there really isn’t. If you focus on quality, stay in it for the long term, reinvest those dividends, diversify, and avoid significantly overpaying, you basically can’t avoid doing well. The only enemy you really have is yourself. Everything else is basically stacked in your favor.

    Best regards.

  100. Thorsten,

    Thanks for catching that error. I was originally going to run calculations using $50,000, but the individual stock comparisons became too large when I tried to spread the capital around. $20k allowed me to focus the results a bit more.

    Yeah, maybe when I write that second book, this article (which would have to be updated) will be included. I think it’s really useful to see the calculations prove out that timing doesn’t matter all that much over the long term. A lot of people might think it makes a big difference, but it really doesn’t. 🙂

    Thanks for all the support!

    Cheers.

  101. Hi Jason

    It’s interesting that the media concentrates about the negatives (worst day in last 18 months, carnage in the markets etc etc), but all the Dividend Investors are concentrating on how this is normal in the markets and either sit it out, or(as I posted over the weekend) buy dividends in top quality companies at the current knock down price.

    It’s almost as though the media believe there is only one style of investing based on buying shares for capital growth.

    Best Wishes

    FI UK

  102. Jim,

    Nice move there. I just recently finished building out my position in UNP. So I’ve now got both coasts locked up. I may add CNI at some point down the road, but I think my railroad exposure is pretty solid now.

    Let’s hope they all get even cheaper from here. Unless you’re no longer accumulating assets, you should be rooting for big drops (and even if you’re done accumulating, buybacks become more effective with cheaper stocks). 🙂

    Best regards.

  103. There is another way to look at this. I am long term on all my positions and have the same view as all of you. However, there are some older stocks I have bought a long time ago and have a nice profit on them if I took them today. I took the opportunity today to sell a position (FTCS) and take a 3K profit (I took profit earlier selling some shares of EEM this year and bought GPC with it giving me better dividends). This gave me a total of 7K to buy today. I started a position in ADM a couple of weeks ago and today, I bought 37 shares of MMM and with the rest of the money, I built up my position further with ADM. This will give me more dividends in the long run than if I just kept steady. Today was a golden opportunity to do just that with MMM being way down from the highs. I got in at $139.15 and with ADM, I got in at $44.46 where I bought earlier at $46 and $47. I consider 37 shares of MMM a full position for me and will keep it as long as the dividends are good. I am building ADM to 100 shares and now I have 46, so still have more to buy over the coming months. I don’t like having more than a cost basis of 5K in any position I have. Days like this, I like to see if I can build up more dividends over the coming months by moving some money around already allocated.

  104. Justin,

    Absolutely. I wrote a while back that inactivity isn’t necessarily a bad thing. All depends on where you’re at and how much capital you have to invest. But sometimes you’re out of money, and it’s just one of those things where you have to be patient until the capital is replenished. Even Buffett occasionally runs out of cash, and I think his recent purchase of PCP probably put him in that situation. But the great thing about investing for growing cash flow is that your cash flow is replenishing itself. A BB gun that automatically reloads itself. 🙂

    Great job there on catching some deals. Looks like the market got a little crazy this morning. I wasn’t even up until 10:30 – the joy of working for myself. 🙂

    Cheers!

  105. SE,

    Yeah, looks like the market was down quite a bit early this morning. Nowhere near Black Monday, but fun, nonetheless. And if these days keep up, we’ll cumulatively have a similar effect. Sometimes you get those big drops all in a day, and sometimes it’s a slow bleed. Either way, I just hope it’s here to stay for a while. 🙂

    Happy shopping over there!

    Best wishes.

  106. TM,

    I can time articles better than the market, which I take comfort in. I have control over the articles. 🙂

    Great move there on CAT. I’m hoping things become much cheaper from here, but it’s just impossible to say. Could rebound quite quickly. Nobody knows.

    Have fun over there!

    Cheers.

  107. John,

    I’m guessing most investors aren’t concerned with hedging because we generally invest in high-quality companies that have a proven track record of excelling in most all economic environments. Cash, meanwhile, has pretty poor returns over the long run.

    That said, you’re more than welcome to invest however you want. I prefer to turn cash into growing cash flow fairly quickly and I’m well on my way to financial independence within the time frame I set out for. But to repeat myself ad nauseam is a waste of time. If you’re hitting your goals, then that’s great too. 🙂

    Take care.

  108. Amegalo,

    Thanks so much. Just doing my best to provide perspective. I felt it was necessary to write it after being somewhat shocked by the flood of concerned emails.

    Have fun with the garage over there!

    Cheers.

  109. Steve,

    Yeah, nothing wrong with being opportunistic. I generally invest all of my free cash every single month, but it’s not all invested on the same day. So there’s a little bit of an attempt to take advantage of opportunities here and there. I would probably be doing less of that if I were an index investor, but individual stocks can be all over the place. So there you go.

    “Sure, we may have lost tens of thousands in the last couple days, but it makes very little difference to me.”

    Unless you’re selling, you haven’t actually lost any money. All paper losses. It’s all just numbers on a screen to me, which is why I prefer tracking the growing cash flow that will actually pay for my expenses one day. The juxtaposition between the two (one is constantly growing; one is constantly fluctuating) makes the strategy all the more robust, approachable, and tangible.

    Keep it up over there!

    Best regards.

  110. IB,

    Yeah, I hear you. Although, who’s to say that buying WFC, MMM, and CL here will be the best choice? Who’s to say they won’t be cheaper in a month or a year? And then you might find yourself in a similar spot where you “saved more in the purchase price than the div’s you missed.” I worry about value in the here and now. If the value is there, I buy. That said, you’ll notice I haven’t been buying MMM or CL. That’s why it’s great to have a market of stocks to choose from. 🙂

    We could all always use an extra $50k. So many stocks, such little capital. Slow and steady wins the race, though. Stick with it!

    Best regards.

  111. Hi DM,

    Great article. I don’t really care about volatility, seeing your portfolio drop a 5 figure number in a week isn’t fun ofcourse but it doesn’t matter if you have invested in great companies. On days like today my mind keeps shouting look at that stock and that one, come on spend the cash. I just can’t choose what to pick first.

    First world problems I guess.

    I hope you have some cash left.

    Cheers,
    G

  112. Spoonman,

    Absolutely. I don’t get CNBC at home, but I can imagine it’s chaos. I received quite a few emails over the weekend from people freaking out, and it’s just one of those things where a heavy allocation to stocks isn’t for everyone. But investors like us thrive in these environments. As always, wish I had more cash. But that’s something that will never change. 🙂

    Have fun over there!

    Best wishes.

  113. FI UK,

    Well, I guess the media is just trying to make a buck. More eyeballs means more money. I haven’t personally watched anything relating to stocks on TV in more than a year. But I don’t watch much TV anyway. Although, it’s tough to escape it. Just pulling up Google Finance hits you with all of these crazy headlines (like the one I included in the post). I sometimes read them to get a good laugh, but I mostly ignore them. It’s just business as usual or me. 🙂

    Thanks for dropping by!

    Best regards.

  114. simply_divs,

    Nothing wrong with that, though I prefer to maneuver around with fresh capital, rather than selling one to buy another. The thing is that you have to be pretty confident that one stock is going to be much better than the other to make the transaction fees and potential taxes worth it. If the stocks are in a tax-advantaged account, that gives you a bit more leeway there. But MMM, for instance, doesn’t strike me as particularly cheap right now. A great stock, but not sure I’d want to sell out of something just to pick it up, unless I was already going to sell.

    However, there’s also something to be said for immediately boosting the dividend income. If you’re able to sell out of something that you think is maybe lacking in fundamentals with a lower yield and you’re able to sell that for something with better fundamentals and a higher yield, you just furthered your progress along. But that’s a slippery slope. It can quickly devolve into trading, which is something you have to be careful of.

    Best of luck over there!

    Cheers.

  115. Stockbeard,

    Definitely. And this is more like a drizzle. A storm would be present if the market were to drop by 20% or 30% from here. But I have an umbrella – an umbrella that rains growing cash flow on me. As do most investors that stop by here. Let’s hope for better (more volatile) days ahead! 🙂

    Cheers.

  116. Thank you for this post. A lot of people just don’t understand all this and start panicking and dumping stocks. This is all noise and the time to buy some good companies at good prices. Again, thanks for being out there. I tell people all the time to come read your blog. Keep it up.

  117. Geblin,

    First world problems, indeed. They’re really great problems to have. My cash flow is regenerating as we speak. And I’m hoping for even better opportunities down the road. If not, I’ll deploy anyway. Makes little difference over the long term. 🙂

    Cheers!

  118. Trish,

    Thanks for spreading the good word. Really appreciate the support! 🙂

    An investment strategy that’s heavy on equities isn’t for everyone, but those that have the right temperament stand to do really, really well over the long haul. And if you’re able to focus on the growing cash flow, you’ll see the higher yields and better opportunities in front of you. Just takes a certain mindset.

    Happy shopping over there!

    Best regards.

  119. Yes, I carefully look at this. For one, FTCS is an ETF and I have not been too fond of ETFs lately. I have gotten a very nice profit on it on two sells, and the dividend amounts are inconsistent which I don’t like. I also sold part of my FTCS to pick up DOW and ALSN earlier this year. Since the individual companies I just bought are for the long term and specifically to grow my dividend income, I really only look at times like today to better my dividend position and look for solid companies that are being hit. This is all in a ira for me, so tax the consequence are not an issue. I’m not too concerned that a stock I buy is particularly expensive since I don’t really plan on selling for years to come, if at all. I just look if I can afford it at the time and make sure it’ll grow my income. I’m sure you know, growing dividends buys stocks themselves and this was money I didn’t have to come up with. So it was free :-). I don’t do it often. I have the same stocks for years, like you do. I think I’m close to 60 now. So just selling FTCS, gave me 4 other dividend growers this year rather than inconsistent dividends from one ETF. Good deal.

  120. Peter,

    I like the way Rich thinks. Not only that, but he’s living off of his dividend income. Although, he’s collecting just a tad more than the rest of us. 🙂

    Cheers!

  121. dawn,

    Yep. I included an index fund in the article for comparison:

    “Let’s say you decided to put all $20,000 in the Vanguard 500 Index Fund (VFINX), which is an index fund based on the S&P 500. And let’s say you gave it one day for things to cool off and put all $20K in on October 20, 1987. If we fast-forward to August 21, 2015, you’d have $293,128 sitting there for you. That’s an annualized return of 10.12%.”

    And…

    “Compare that to the person who lacked a crystal ball and decided to invest all $20K in VFINX the very Friday before Black Monday, on October 16, 1987. Just imagine the feeling in that person’s stomach when they woke up Monday to find out that their investment just took a major haircut. Well, this is where time in the market comes to save the day. That same $20K invested in VFINX on October 16, 1987 would currently be worth $245,530. That’s an annualized return of 9.42%.”

    It’s all in the content. 🙂

    Take care!

  122. I am new to the DGI way of life. I have been reading everything I can in your recommended books (yours included!), I have gone back to start reading your blog posts from the very first one back in ’11. I have been compiling my watch lists and up to this point have saved up $9000 in cash waiting to be deployed. With the markets riding so high over the last 2 months I have been trying to focus on good companies that happen to be good values at the current time. I have been hoping for a broad correction or at least a dip to begin my first purchases. Now that a dip is here I feel like a hunter that unexpectedly jumps a flock of geese and with so many targets to shoot at all at once he is paralyzed not knowing where to aim. I want to put a $1000 into each new company I invest in to starting today with one. The list I have includes 24 high quality CCC companies but my paralysis now comes because everything is on sale. For my first purchase which do you like the value better of- JNJ, PG, OHI, EMR TGT QCOM or CAT? Eventually I would like to own them all plus many more as I am able to continue saving more and more of my income. My retirement horizon in 18-20 yrs away. Would you be willing to offer your opinion?

  123. Flynn,

    Welcome to the party. It’s a pretty sweet party where your cash flow grows and you eventually become free of the need to work for the rest of your life. 🙂

    As far as your predicament goes, it’s not uncommon. There’s a lot of psychology involved, but people tend to want to ride high and buy strong when stocks are moving up. When they start to move down, they arrive at a state of analysis paralysis, even if the values are now better than they were before. All I can say is all I’ve been saying for the last four years: Stick to the plan.

    As far as the stocks you’ve listed, I don’t think it’s possible to directly compare them all. I don’t follow QCOM, but the rest are all fine companies. I would buy that which YOU feel the most comfortable with after doing an actual analysis on the company’s financial statements and qualitative competitive positioning. I don’t think TGT is particularly cheap right now. And JNJ is arguably the highest-quality company of the bunch. But you’ll have to figure out what kind of investor you are and what industries you favor. That’s just a personal call. In the end, though, my goal is to have exposure to as many high-quality companies as I can find. So I try to “own them all” to a degree. When I stop finding great companies to add to the portfolio, I’ll stop. You may find yourself in a similar position. And $9k could be spread out across at least four different companies, so I don’t see a reason to choose just one stock. But, again, it’s a personal call. Depends on how many companies you eventually plan to own. You’ll have to figure that out as you go.

    Best of luck over there!

    Cheers.

  124. It does frustrate me how media and financial industry focus solely on share price and capital appreciation.
    The original concept of stocks and shares was that the shareholder was a part-owner in the business and “shared” in the companies profits “dividends”.
    Im fairly sure I read somewhere that there are a number of brokerages whos best performing clients were people who had either forgotten they held the account for one life reason or another. Im fairly sure that is as good an advert as any for DGI / buy and hold investing.
    In my portfolio companies such as BHP, PG, DIS, V have all dropped significantly. but the dividends are safe and consistent the rest is irrelevant. I spent the original capital to purchase an income stream which still exists. The fact someone can purchase a similar income stream for a little cheaper just means that its a lucky day for those individuals.
    Really enjoy your articles and you give a good sense of perspective.
    All the best from the UK to the US

  125. Thx Jason for your response! I have had such an education reading your posts and replies to comments. I guess I feel like I really can’t go wrong with any of the quality companies I have been looking at after learning (at least starting to learn) how you and some of the other DGI’ers are screening your lists. I guess my struggle is deciding “good” vs “better right now”. In all my reading I have not seen where you made your first purchases on your journey in the Freedom Fund. I would be curious in seeing what you did in the very beginning and what your thought process was in making your first buys with the cash you had available.

  126. DF,

    “I spent the original capital to purchase an income stream which still exists. The fact someone can purchase a similar income stream for a little cheaper just means that its a lucky day for those individuals.”

    That’s the crux right there. You’re purchasing an income stream, and one that will, hopefully, grow for the rest of your life. The fact that the income stream becomes cheaper or more expensive tomorrow matters not at all, unless you’re buying more of that income stream or trying to sell it for one reason or another. Otherwise, it doesn’t matter at all. It’d be like worrying about the day-to-day fluctuations on the price of your house. Or worrying about what someone would pay you for your pizza shop every single day. It’s nonsensical in almost any other application, yet frequently accepted and even cheered on when discussing stocks. It’s so funny.

    I wouldn’t let the media frustrate you. I’d just ignore the media. That’s what I do. 🙂

    Best regards.

  127. Flynn,

    I’m happy to help and share, although the most value will be found in just going through the motions. That’s where the experience comes from. Letting the capital fly and then getting on with the rest of your life is what I recommend. Stewing about and chasing dozens of different stocks in a circle is probably a waste of time. Whether you buy EMR or JNJ with $1,000 or whatever will likely make very little difference 20 or 30 years from now, unless one of the companies has some kind of major breakdown… which is unlikely and cannot be predicted. But that’s why we diversify.

    “Good” versus “better right now” can only be known in the future. It’s only known in hindsight. I recommend to just accept that you’ll never know that in the present and move on. All you can do is make the best decision with all the information at hand, which is why I recommended making the right choice for you after looking at the financial metrics and competitive advantages. Whether or not that turns out to be the best decision in 30 years can’t be known now. You’ll only know it in the future. When I buy a stock, I have no idea whether it will for sure perform better than any other over a long period of time. I just look at the quality and value and make sure it fits within my goals and portfolio. If the value and quality is there, I’ll buy. It’s really as simple as that. You can’t control the rest. Keep in mind as well that your savings rate will matter much more than your returns over a 10-year period of chasing after financial independence. So I’d focus most of my resources there.

    Some of the first stocks I bought were XOM, JNJ, ABT, and KO. I tried to diversify as I went on, slowly accumulating high-quality stocks. And I was focused on yield much more back then as well. I’ve become a bit more lax over time on that as my ability to expand has improved. But all the stocks you’re looking at provide pretty appealing yields right now.

    Good luck over there!

    Cheers.

  128. Again, Thank you Jason for all you have done to get me started in the right direction on this journey of Freedom! I am so grateful that I stumbled upon you after reading “The Single Best Investment” that I accidentally found at a garage sale. I really feel like after all these years of spinning my wheels I now have a plan and a course to follow… Steady and sure will win the day. I look forward to each new DM post and I am excited about my journey. Thank You!

  129. That’s an excellent way to look at it, Jason – paper losses are meaningless until you attempt to cash in on that paper. We, of course, have no plans to do that for years. That is definitely the right state of mind to have.

  130. I think we are on very similar pages here and use similar approaches. I differs in 2 ways from you: 1) I’m not against having some concentration, 2) I aways like to have dry powder.

    For number 1 I have a set of 10-20 boring and/or just great businesses which form my core. These can make up more than 50% of my bucket. I’ll buy these companies at a fair price just to maintain my concentration, but I like them even better at a good price (a great price rarely comes).

    Number 2 is impossible to follow 100% – unless you are Warren Buffett. I fail at it all the time. I always get periods where you use all my extra cash and just have to wait (or sell something else), even as the market drops more. That’s just life.

    Are CL, MMM, and WFC the best buys out there right now? Nope, but I’ve been waiting to build up a little more in each, just to keep them as part of that concentrated core. So now is a good time for me to take that opportunity.

    I still have some powder still, but it’s less than I’d like:)

  131. IB,

    Both MMM and CL have become more intriguing lately. The last I looked at CL, I figured it was worth about $54 or $55 per share. $62 isn’t too far off from that level, but it’s still not cheap. MMM appears to be a better value right now. Totally different businesses, though. I’d love to own both, and likely will sooner rather than later. 🙂

    Happy shopping over there!

    Cheers.

  132. What a great post and I had a wonderful weekend. I just sold a rental house which gave me 30k to invest. I spent the whole weekend pouring over Canadian stocks trying to decide what to buy today (regrettably Canadian/US exchange prevents US purchases at the moment). Then to my surprise Mr Market is grumpy this morning and after making all my planned purchases this morning I find I have almost 5k left after the sale this morning. I guess I will have to look for some more deals :>)

  133. Ken,

    I’d say you definitely had a wonderful weekend over there. Congrats! 🙂

    Great timing as well. Nothing wrong with ever having $30,000 to invest, which is something most people just dream of. But it’s especially helpful when the market is a bit more volatile than usual.

    Happy shopping with what’s left over there. That should boost your dividend income big time!

    Best regards.

  134. I’m investing with money i don’t need for the next 5 to 25 years. Emergency fund sound. No debts. Rock on, lower prices. My coworkers panicking about the “drop” and “wish they sold sooner”. Uhhhhhhhh.

  135. Buying opportunities are cropping up. Heck, for the folks just starting out, they are getting a mulligan vs. having missed out putting money into the market since, what, November of 2013?

    I can only hope a broad base of dividend paying stocks do not fail us in the long term with dividends getting cut. Funny how the old advice of buying blue chips was touted all along, partially ignored in the dotcom era, and presently being re-invigorated. I have my eye on basically the components of the DJIA plus a hand full of dividend aristocrats and REITs.

    For those that saved up money and waited, time to start buying some dividend paying stocks and let time in the market takes its course.

  136. Timely article, DM! Market was crazy today to say the least. Although, timing is not important, it is not a bad idea to buy at the low point, especially when carnage is taking place. I end up buying few stocks today, which was tough, however, we need to keep long term perspective. Keep racing.

  137. Zol,

    You’ve got the right mindset there. And you’ve set yourself up to just roll along on cruise control. The cheaper high-quality dividend growth stocks get, the better off us asset accumulators are. 🙂

    Cheers!

  138. Mark,

    Ha! Yeah, there you go. The market is a funny place. Years and years of price changes can evaporate quickly. That’s just another reason I focus on the growing dividend income. It’s also a good reason why I anchor my buying decisions on value, not price.

    I think looking at buying the market directly before an directly after a major crash just goes to show that timing is completely unnecessary, even if it were somehow possible (which it’s not). I’m all for being opportunistic and hunting down value on high-quality assets, but worrying about which way the market is going to go is a complete waste of time. It won’t matter much anyway.

    Happy shopping over there!

    Best wishes.

  139. R2R,

    “Although, timing is not important, it is not a bad idea to buy at the low point, especially when carnage is taking place.”

    The problem with that line of thought is that you don’t know what the low point is until it’s already come and gone. The market could very well drop another 5% tomorrow. Or it could rebound strongly and we don’t see these levels again. Nobody knows. I think it’s completely pointless to try and catch those bottoms, which you can’t do (outside of pure luck) anyway. Stick to the long-term plan of regularly deploying capital in high-quality dividend growth stocks, grow the cash flow, reinvest, and spend less time worrying. 🙂

    And this is far from carnage. If Black Monday had a very small impact over a 30-year investing period, this recent stuff will basically be meaningless. But it’ll be fun. I certainly hope for more volatility, but the more I look at it, the more I realize it doesn’t matter all that much. It’s meaningful only in the short term. But these fluctuations smooth out to almost nothing over the long haul.

    We’ll see how it goes!

    Take care.

  140. I don’t comment much anymore because the comments section is so crowded and I can’t usually add much. However, just to let you know — EXCELLENT article. I posted a link on my facebook page. Hopefully a few folks will begin following your blog from there.

    Thanks for your great work!

    Steve

  141. I totally agree with your view, and you are well-positioned to weather any possible storm currently. I also am into dividend investing, however, let me tell you my story, how I suffered for 7-8 years by buying asset (stocks) during the peak of its cycle. I believe this is helpful to the folks who just starts dividend investing.

    1. I started investing back in 2005 to 2007. It was a top of bull market, and used all my investing money to buy stocks and some funds (it was a pretty good selection). Well, everyone knows what happened during crash 2008. My portfolio went down about 70% during one and a half years. It didn’t recover until 2013. You see, lots of people got freaked out now because of only several days of correction, one can imagine how devastating it would have been at the time.

    2. Every assets have their cycles, and it is never good idea to buy any assets, stocks, real estate or whatever, during their top. Yes, you can reduce your position and accumulate small. But like I did back in 2007, if you position fully and furious on top of the cycle, it will take a long time to recover when assets go down. It probably would recover eventually, but it will take so much time that requires inhumanly patience and inflict so much emotional pain.

    3. Yes, I know you still get dividends during downturn. HOWEVER, there are still companies to reduce or eliminate dividends. Not only that, some of the companies you are holding will go bankrupt. Furthermore, some of them will survive but would never recover or take more than 10-20 years to recover completely. Even though they are only small numbers in your portfolio, damage will be amplified on already blown account.

    4. All these will be still ok and dividend strategy will work well if you start your position in reasonably priced assets and long term. You see my mistake here in 2007? I bought expensive stocks in FULL FORCE just before bear market!

    5. The reason why I am saying this is, although stocks have been corrected somewhat past several days, this is nothing compared to the bear market and still stocks are expensive. I am not trying to time the market here. First, it is common sense, when something goes up hard, it will go down. Second, S&P PE ratio has been very high recently. I am not saying we need to stop investing on stocks. I think it would be prudent to position gradually and small in this type of market.

    What worries me is some people are inspired by dividend investing, and starting this on top of the stock cycle with ALL their money (except maybe some emergency fund). If bear market hits within a year or two, you will see your dividend portfolio that you invested with all your money goes down to less than 50% (possibly you will have only 20-30%). On top of that, your dividend payments won’t be much because you just started. Some strong folks might just shrug off and continue to put majority of their money to stocks, but I bet It will be very tough not only financially but emotionally.to many people.

    Of course, DM will be ok because his portfolio generates good dividends and he accumulated his positions when they were valued much better than now. However, I want to caution new dividend investors and hope my horrifying experience helps.

  142. Steve,

    Everyone has an equal voice here. Sorry to hear it’s gotten crowded for you, though.

    Appreciate the support and sharing very much. Hope the article helps out an investor or two. 🙂

    Best regards!

  143. Hey, who doesn’t like it when hamburgers go on sale? Market drops bring P/Es down everything else being equal. Have you looked at WMT today? The price closing has a 3% yield and PE of 13.35. I don’t think their business model is gonna up and perish any year soon, despite the gloom and doom. I am thinking of getting more JNJ too, among others, if prices keep getting haircuts.

  144. shammonne,

    Thanks for sharing your story!

    I think part of the problem you experienced was that you invested all of your money right before a major downturn. And you invested over a very short period of time. I’ve never heard of anyone who invests for just two years of their life and calls it quits. Most investors are dollar cost averaging their way into stocks month in and month out over years, and it’s certainly the capital deployment strategy I follow and recommend. Most people don’t have, say, $100k to invest all at one time (I’d still DCA in). And if you do, you’re in pretty good shape anyhow. But if you average your way in before and after a major drop, the effects really aren’t that evident, as I showed with the examples above. 2007 wasn’t that long ago, so you haven’t given it long enough to smooth out. But it will, eventually. Besides, the market is up over 150% from its 2009 lows, so you’ve done well. And dividend growth over the last few years has been really, really strong from a number of firms.

    You also seem to be focusing too much on stock prices. As long as the dividends are rolling in and growing, the prices don’t matter. Prices only matter when it comes time to buy more (I’ve discussed finding opportunities in an expensive market) or sell (which should happen pretty rarely). Since you apparently went into it with a plan to just invest everything for two years and sit, you should be fine. Again, not a strategy I’ve ever heard of or would recommend, but it’s your money.

    “My portfolio went down about 70% during one and a half years.”

    The S&P 500 didn’t fall nearly that much from peak to trough during that period, from what I can tell. So that leads me to believe you were investing in poor companies. Most of the high-quality dividend growth stocks I write about and invest in actually fared pretty well during that period. I think there are quite a few that dropped 20% or 30% over a stretch, but nothing close to 70%. And certainly not across an entire portfolio. I can only presume that you weren’t investing very intelligently.

    Lastly, I find your sentiment on dividends and bankruptcy to be wholly inaccurate at best and complete fear mongering at worst: “HOWEVER, there are still companies to reduce or eliminate dividends. Not only that, some of the companies you are holding will go bankrupt. Furthermore, some of them will survive but would never recover or take more than 10-20 years to recover completely.” I’ve already discussed how dividend growth works and how an investor that faces a dividend cut or two will be made whole and then some via dividend growth from other companies, assuming they have a properly diversified portfolio. And dividend cuts/eliminations are somewhat rare. Sure, they happen. But not often. And they can be largely mitigated. As far as bankruptcy goes, you tell me how many companies that have increased their dividends over a 10-year+ time frame have went bankrupt over the last twenty years. And 10-20 years to recover?

    I mean no offense, but I’m not sure how much value I can find in your comment. I think a lot of it is very inaccurate. And I don’t know anyone who just invests for two years straight into a market peak and then retires forever from investing. You either didn’t know what you were doing from the start or you don’t know what you’re doing now. Either way, knowledge is power.

    Take care!

  145. Mark,

    Indeed. Who doesn’t love it when anything goes on sale? Whether it be food, clothes, or stocks, I like cheaper merchandise. Especially quality merchandise. 🙂

    It’s funny, but we hear about an efficient market. I read something about Apple’s market cap swinging almost $100 billion today. As if the company is worth $100 billion less Monday morning than it was Friday afternoon but then $50 billion more Monday afternoon compared to Monday morning. It’s just nuts.

    Have fun over there!

    Cheers.

  146. I thought we might get an article like this from you. This morning was pretty crazy with an 1000+ drop in the DOW I wondered how low we might go. It seemed like everyone had entered their sell orders (many market orders ugh) over the weekend and they all piled up at the open. I’m more worried about the oil dropping below 40/bl than the market drop. I’m not sure how long CVX can hold up in a low $30/bl range without cutting the div.

    On the bright side yields are looking marvelous now:

    T – 5.8%
    PG – 3.7%
    VZ – 4.8%
    KMI – 6.2%
    O – 4.9%

  147. Jason,

    Your article here was my way of finishing a discussion with a coworker who discusses stocks and finances with me on a regular basis. We have been discussing how important having cash on hand for when the stock market goes down is verses just continuing to invest in good stocks all the time. Thanks for such a great post.

    Tyler

  148. Captain,

    Yep. More growing cash flow for the same amount of money. And it’s the growing cash flow (not the stock prices) that will free us. 🙂

    Cheers!

  149. As predicted today’s move into correction territory is painful for me to watch from sidelines as my dry powder is used up! Ughhh. Down 100 k from the high a couple of months ago. The good news, My wife has dry powder. She bought DOW. Thinking about QCOM, TROW, and UTX. Best, DD

  150. DD,

    I hear you, my friend. I invested something like $4k or more over the past month. Some readers seem to have this impression that my capital is unlimited, but that’s sadly not the case.

    Won’t matter much, though. Just continue averaging in and you’ll be fine. Besides, you’re planning on living off of your income in the next couple years last I knew. You’ll have to get used to watching from the sidelines. Many better things I can think of than watching stock prices. 🙂

    Cheers!

  151. Just to clarify, I’m not suggesting to time the market, far from it. I’m just saying when the market goes down, look for value and buy great companies. As Buffet says: be greedy when others are fearful 🙂 A drop-off of 1100 points is big move, which way you look at it, though, it may not amount much over longer term, unless, US goes Japan way, where Nikkei has not recovered even after more than quarter century, inspite of zirp, and stimulus after stimulus. cheers!

  152. R2R,

    Absolutely. But one should be looking for value and great companies all the time. And while I agree that one should be greedy while others are fearful, we’re still near all-time highs here across the broader market. Like I said, it’s just a matter of sticking to the long-term plan. The good news is that a number of stocks that were cheap before the drop are even cheaper now. And some that were expensive before are less so now. Nothing earth shattering, but still good news for long-term investors. 🙂

    Cheers!

  153. I already invested all my leftover cash for the month, now I’m just trying to figure out whether or not to dip into the reserves. Weeks like this one are the entire reason I keep reserves in the first place…and JNJ is looking very tempting at 17x earnings. Or GILD at 11x. Or UNP at 15x. Nestle? I’ll gladly take these great companies off someone’s hands if it makes them feel better.

  154. Justin,

    “I’ll gladly take these great companies off someone’s hands if it makes them feel better.”

    Ha! I’m with you on that one. 🙂

    I’m not sure who’s selling some of these stocks down here. And I’m not sure who sells stocks when big corrections hit. Tax-loss harvesting? Panic selling? Who knows? I think the earlier referenced Richard Kinder quote – “You sell. I’ll buy. We’ll see who comes out ahead.” – is pretty apt (I’m paraphrasing there.) If it makes someone feel better to sell high-quality stocks for less than they’re worth, I’ll gladly do my part and scoop those shares up.

    Best regards.

  155. Bought some of that BBL and BP today for some sweet DGI. Buy when there is blood in the street.

  156. Alaska49,

    Nice move there. BHP Billiton is becoming stupid cheap here… close to the price it was available for at the height of the financial crisis even though the company is larger now. The last financial report was overall pretty solid. It’ll be interesting to see how this plays out over the next 10 years or so. 🙂

    Glad to be a fellow shareholder!

    Best regards.

  157. Hi Jason,

    Very exciting times! Wouldn’t mind seeing stocks go a lot lower too. I was happy to see SBUX drop to more reasonable levels, though it still isn’t very cheap. Thanks for the article! It was very interesting!

  158. Hi all,

    yesterday was such a crazy day in Germany – since the Euro went so strong (+2,5% vs the USD), there was a real SALE on all major blue chips. PG was -10%, MO was -10% and Colgate Palmolive, as well as CVS has been -20% for a few minutes. I wish I had an automated buy-order placed, since in the evening, things have normalized again… These are the days we’re looking for to buy some value. I again doubled my position in UNP yesterday, which was -7% in Euros…

    Regards and all the best
    Markus

  159. If you had to pick a few dividend ETF’s which ones would they be ? (This would be a very good blog post)

  160. Jason,

    Can you help confirm if BBL has reduced their year end dividend? There was a $1.24 per share dividend on April 1st and I assumed they will maintain their $1.24 payment at the end of September. Their website lists a full year dividend of $1.24 and a financial news site states their final payment is at $0.62. Isn’t this a dividend cut then?

    Thanks,

    Mike

  161. Great Article, as per usual. Just have an off-topic question thou. Are you still planning on sticking with Bax/Baxalta? I invested in BAX prior to the spin-off as well and was planning on keeping both. But I just read that BAX has cut their dividend. Your thoughts?

    Ps- still really enjoy your blog. Keep up the great work!

  162. Markus,

    That’s the way to do it. Ignore the noise, deploy capital, and pick up assets for less than they’re worth. The doomsayers will speak of doom until the end of time, but the odds are pretty good that the world will continue to prosper. 🙂

    Best regards.

  163. James,

    I don’t really track any ETFs, so I’m probably not the best person to really ask about that. Of all those that I’ve come across and looked at, SCHD seems to be one of the better choices. 🙂

    Hope that helps!

    Take care.

  164. Mike,

    Hmm, I’m not sure why there’d be any confusion. The company released its financial report for the year ended June 30 2015 and the dividend announcement is in there:

    http://www.bhpbilliton.com/~/media/bhp/documents/investors/news/2015/150825_bhpbillitonresultsyearended30june2015.pdf?la=en

    $1.24 per share, payable September 29.

    I can’t really say this enough, but the best place to check for this information is always directly with the company in question. Third-party financial sites are never guaranteed to be 100% accurate.

    Hope that helps!

    Cheers.

  165. Sampo,

    Nice! FAST is definitely on my radar after the precipitous drop. Some of the industrial plays out there have become really solid values here. And I’ve noticed when combing through David Fish’s list that the Industrials sector is very well represented in regards to companies that sport lengthy dividend growth track records. Maybe counter-intuitive due to the cyclical nature of many business models, but a lot can be said for running a great business.

    Cheers.

  166. Dividend Mantra, if you could put a row on the bottom of the freedom fund that contains total cost of purchases and current value vs. the S&P total returns/dividends reinvested that would be great for someone like me interested in your philosophy.

    I am firm believer that things eventually revert to the mean which would mean that the S&P on a historical basis would yield 3-4% in dividends. I think we are living in a time where interest rates have been flat for 15 years but things always seem to revert back to the norm over time where the S&P will return 9-10% total with about 3-4% of that total return coming from dividends.

    Thanks,
    that comparison would be beneficial to many of us.

  167. Good day dividend mantra I was able to get $3,000 of fresh capital. It was like shopping at the mall on Black Friday. The deals!!! I reviewed all of the posts and recent buys of everyone and finally made the final decisions and nabbed some great buys New positions in UNP, DIS, CVX, and added to my JNJ and KMI. I love the deals !!!, now I must get my hands on some fresh capital. I already work 12hr so overtime is out of the question lol, thanks for all of the information and encouragement bless you and your family
    Fon, fon

  168. Daniel,

    I don’t compare my portfolio to the S&P 500 (or anyone or anything else):

    https://www.dividendmantra.com/2013/12/why-i-dont-compare-my-portfolios/

    The only thing I care about beating is the rat race, which is a race I won just after 32 years old. I feel pretty good about that. 🙂

    But I do publish cost basis and current value (as of the last update) on my portfolio page:

    https://www.dividendmantra.com/portfolio/

    That won’t be accurate for total return purposes because the portfolio has changed over time and acquisitions/sales/corporate actions have transformed certain positions over time (MDT, LO/RAI, VOD, etc.). And the dividend income significantly contributes to one’s total return.

    Hope that helps!

    Cheers.

  169. Fon fon,

    That’s great stuff there. Always tough for all of us to come up with thousands of dollars, but stringently keeping to your savings plan means you should have regular capital to disperse as time goes on. Naturally, you’ll catch those dips (and the pops) as you go. But great job catching some sales over there. 🙂

    Hopefully, you’ll be able to slow that hectic schedule at some point in the future when the dividend income starts to really roll in for you. I don’t wish 12-hour days on anyone.

    Keep it up!

    Best wishes.

  170. Jason,

    This is a little off topic but-

    How would your investment strategy differ if you lived in a state with state income taxes? Would you focus on high quality low yield(growth) stocks, or would you still go for high quality stocks in in the 3-4% range and pay taxes on the dividends annually? I’ve read articles online explaining that Californians should stay away from dividend stocks due to taxes.

    I like the thought of the snowball effect, but I don’t like the thought about having to pay almost 30% in taxes(Federal + State) on my dividend income.

    Thanks,
    Joel

  171. Joel,

    I’d move. High-tax states like California, Oregon, NY, and Hawaii tend to be fairly expensive places to live anyhow. 🙂

    Seriously, though, I wouldn’t change anything at all. Taxes won’t affect you all that much while your portfolio is still young and spitting out only a couple grand a year in dividend income. As it starts to grow, tough, taxes will become a larger threat. But right about the time taxes become a significant drain (your dividend income is in the five figures annually), you’re probably in a position to think about your long-term objectives. If geographical arbitrage isn’t in the cards and you’re dead-set on living in a place where the COL and taxes are high, then it’s just a burden you’ll have to accept. I wouldn’t change my strategy, though.

    Considering full use of tax-advantaged accounts might be a smart way to go about it. But that comes with its own set of hoops to jump through. So it all depends on what you want out of life and what you’re willing to tolerate.

    Best regards.

  172. Thanks, Jason. That’s what I was thinking. I’ll just have to live with it and treat it as if it was any other type of income, and pay the tax. Once the annual dividends become a significant amount, I can always hold a portion of my dividends and set it aside for uncle Sam 🙁

    I’ve always treated my taxable account as my play money account, so this isn’t so serious.

  173. My experience has been similar to Shamonne and only reason I am writing this comment is to fully support him. He is not doing any fear mongering but letting your readers know how dangerous it is to buy at the top of market. I also bought several top class companies of the period, they dropped like 60-80% and I waited for many-many years, but, price never recovered. Shamonne is just cautioning your readers about the dangers of buying at the top. It is little offensive to suggest that he has some sort of agenda, he is honest in sharing his story and it is imperative that readers understand the risks involved. Folks can loose lot of money as well. So, his story is very timely when market is almost at the top with high PE.

  174. John,

    It seems to me you didn’t read the article at all or the comment I wrote back to Shamonne. Most people aren’t buying all in. Most are going to dollar cost average their way in over years, meaning these fluctuations will mean very little over a long period of time. And even if you were to buy “all in” right before the bottom drops out, you still don’t fare all that much worse than someone who timed it just right. That’s looking out over the long term. Of course, over the course of a couple decade or less the results will be much different. The longer you go, the more the results smooth out. And you’re not “losing” anything unless you sell. There’s an opportunity cost there, but this strategy is focused on growing dividend income. What someone is going to pay me for my stocks matters very, very little to me. One should be looking forward to major drops, not shying away from them.

    I can’t really make it any more clear than I already have. The math is there. It’s up to you to read it and understand it… or not.

    I do notice, however, that market volatility brings out some… interesting… commentary.

    BTW, I am interested in knowing which “top class companies dropped like 60-80% and never recovered”. I’d be very glad to have the opportunity to buy into high-quality dividend growth stocks that are still available at those prices.

    Take care.

  175. I’d like to chime in as I live in California and I’m a dividend investor. Luckily, dividends are taxed very nicely (at least federally) so at most you’ll pay 15% on those dividends. As DM has already mentioned, use ANY tax advantage vehicles you can get to reduce your taxes. I use my property taxes, max my 401k, and contribute to a traditional IRA (instead of a Roth). I will also look to tax loss harvesting strategies.

  176. “I use my property taxes…”

    Peter,

    What do you mean by this? Is there a tax advantage vehicle, related to property taxes, that I don’t know about? please enlighten me.

    Thanks,
    Joel

  177. Well I guess I was writing down any write-offs I’m able to use to lower my tax bill. Property taxes combined with the mortgage interest I’m paying is higher than my standard deduction. So I use property taxes/ mortgage interest to lower my tax bill. I apologize for making it seem it was a real tax advantaged vehicle as I’m sure most people use their property taxes/mortgage interest over their standard deduction (if the property taxes/mortgage interest is higher).

  178. Jason,

    Thanks. It’s interesting that they report as $0.62 in two line items, but I suppose that makes sense for a semi-annual dividend payer?

    Thanks again.

    -Mike

  179. Mike,

    Each ADR represents two ordinary shares.

    Moreover, if you scroll a bit down you’ll see this:

    “Our commitment to the progressive dividend is unchanged. Our full-year dividend increased by 2% to 124 US cents per share.”

    Cheers!

  180. Excellent article Jason. I’ve done ton of research on time in the market and its probably the most important factor when it comes to investing. Buy good quality companies in this market guys, don’t be scared as long as you’re thinking 5, 10, 20 years into the future.

  181. Dear Jason,

    Thanks for your great writing which always inspired me.
    I am also a dividend growth investor for a whole life run from Taiwan.
    I really like your collection of those blue chip CAGR in a long run from 1987
    and would like to ask you if you mind I quote those number in my blog:
    http://guccismile.blogspot.tw/
    which is a personal blog spreading thinking of value investment
    Of course , I will note the source from :Dividend Mantra” if you approve.

  182. incomerookie,

    Thanks so much!

    Yeah, timing the market is viewed as “sexy” or whatever, but it’s really time in that is going to have a big factor on how successful you’re going to be. You can’t control timing, but you can control time in. That gives one a huge advantage. 🙂

    Best regards.

  183. While the “paper value” of a portfolio (what you could get today if you sold it all at the current price) can go up or down, the real value is the part where it says you own X shares of stock Y. That doesn’t go up or down until you choose to buy or sell. And… it’s all about buyin’ low and sellin’ high… and collecting the dividends while you hold them. Go long… real long… and buy only quality, if you want the best way to win in the stock market.

  184. David,

    Definitely. Prices change daily, but values don’t. And the shares I owned last week are still there, last I checked. 🙂

    It’s only with stocks that people seem to hate to score a deal. Fine by me. I have a lot of buying left in me over the next seven years or so.

    Thanks for dropping by. Let’s keep scoring those deals when we can!

    Best regards.

  185. LOL what a busy week I could not buy fast enough 🙂 As one of my hero’s, John D Rockefeller, once said “The time to buy is when there is blood in the streets”. I have friends that were crying in their boots ! It amazes me how little MOST people know about dividends and how they work 🙁 I have had to explain to at least 10 people that they are in fact NOT losing money and if they have cash they should be buying 🙂 Im plenty old enough to remember many ” Market corrections ” and “Market Crashes” I just stay the course 🙂 Imagine if Rockefeller sold out in 1873 when the NYSE actually closed ! or During the “Great Depression” when he said “These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again.”
    John D. Rockefeller on the Depression in 1933

    Andrew Carnegie, JP Morgan, Cornelius Vanderbilt …. All USA Heros ! ALL lived through much harder investment times than we will ever see in our lives and all rich beyond rich 🙂

    Invest for life 🙂
    Bob

  186. Bob,

    I’m with you (and Rockefeller) all the way! 🙂

    I actually just included one of Rockefeller’s old quotes for an article I wrote for DTA that will go live this weekend. He knew a thing or two about wealth and dividends, that’s for sure.

    Not only does prosperity always return after depressions/recessions, but it lasts far longer than the downturns. We prosper far more often and for far longer than we suffer. But I am hoping for a little “suffering” next week/month so that I can prosper over the long run.

    Have a great weekend!

    Best wishes.

  187. So true. I am done trading stocks. I am a buyer and holder now. Thank you for the article!

  188. Yeah, I totally lucked out on catching that falling knife. Probably won’t happen again in my lifetime since I rarely sit in front of the computer watching the stock tickers.

  189. Jason,
    don’t you think you hit too much?
    I can understand if you want your money working for you immediatly. But isn’t that diametrically opposed to what Warren Buffett recommends?
    Don’t hit too much. Be patient. Wait until the ball (company) is in your sweet spot.

    Ahoj
    ZaVodou

  190. ZaVodou,

    Do I hit too much? I’m not sure what you mean by that? You mean I buy too much? I’m not sure that’s a problem. And if it is, it’s one I’d quite like to have.

    Warren Buffett runs a multibillion-dollar company. I’m aiming for financial freedom as soon as possible. Really quite different. And if you were actually following Buffett and the portfolio and everything else, you’d see they’re constantly deploying capital. In fact, he just shelled out $32 billion for Precision Castparts at arguably a market high. PCP was nowhere near a steal, which he freely admitted.

    Have a great weekend!

    Take care.

  191. Hi Jason

    Nice article. I have been slowly investing over the last year and with this correction my portfolio has taken a hit.

    A friend of mine who writes meta trader algorithms for forex traders asked me why I did not sell as the prices started to drop and then buy back in later. I would be buying back in getting more shares and a higher yield. I have to admit to being stumped about how to reply other than to say that I do not want the stress!

    Strange how I can take the stress of being down 12% knowing in the long term it is meaningless.

    Keep up the good work.

    Rob

  192. All that’s left in today’s stock markets are short sellers and day traders. If you can’t time the market you shouldn’t be in the market at all. Personally I buy out of the money puts on the market each month knowing one day the big ponzi will collapse.

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