Bull markets can prove fragile, with anything taking them down a notch – or two – at any moment. Sometimes those reasons are irrational. Sometimes they’re logical threats for investors to fear: things that could all represent significant hurdles for forward-looking growth.
Regardless of the market, however, or the sentiment surrounding it, the easiest, best, most reliable, and stress-free way that I’ve found to generate significant wealth over the long-term is to buy and hold blue-chip equities.
If you’ve heard me say this before and are getting tired of hearing me say it again, I fully recognize that I sound like a broken record. Moreover, I know how obnoxious broken records can be – and those I’d like to break.
I have a two-year old, so I’m all too familiar with the same song being played over and over again. Right now, she’s hooked onto an annoying tune that a plastic bubble-spraying machine shaped like an octopus makes.
I hate to say it, but I’ve considered “accidentally” throwing that toy in the trash many times already.
With that said, when it comes to the benefits of long-term equity ownership and taking advantage of the exponential compound growth associated with reliable growing dividends over time… I’m more than happy to stand on my soapbox and shout out that message as many times as investors need to hear it.
Here’s the deal: Over the long-term, blue-chip equities tend to rise in value. And blue-chip dividend growth stocks tend to raise their dividends. Therefore, why would you panic and sell them when the market takes a dip or even a dive?
Sure, there are examples of blue-chips that have crashed and burned. However, those are the exception, not the rule. Take a look at Justin Law’s Dividend Champions List, and you’ll see that there are many, many wonderful companies out there that have been raising their dividends for decades on end.
It’s true that the past does not predict the future. But the systems these businesses have in place have led to their success over years and years. And those same systems are very likely to lead to more success moving forward.
Generally speaking, excellence doesn’t happen by accident. Winners continue to win. And as an investor, I want to be aligned with nothing less.
FUD is a common financial today. It stands for “fear, uncertainty, and doubt, three things that very often drive selloffs. And yet, if you look at a very long-term chart of the broader market, the direction that it’s pointing in is clear: up and toward the right. So, once again, let me ask you…
Why sell something that has made a point to have it so good?
I get it. Fear it is tough to deal with. I struggle with this myself; however, the truth is, you can’t live your life afraid of things that never happen. Or even that might.
When you do this, you end up missing out on all the wonderful opportunities that life has in store. And, when we’re talking about the stock market – which is a market of stocks – there are always attractive opportunities to get long on shares of wonderful dividend growth companies.
Therefore, there are always attractive opportunities to augment your passive income stream.
But in order to make the most of them, you can’t just sell shares and hide in a fetal position, hoping the bear market boogeyman will go away. Given enough time, all bull markets will pass. Just like all bear markets will pass too.
While we should enjoy the former, we should always be ready to take advantage of the latter. Because when they leave, so will the massive opportunities they created.
When the markets fall hard, you’re almost certainly still going to feel fear, even if you do adopt this mentality. No one likes seeing their net worth shrink by a significant amount of money, after all.
Late in 2021, CNBC correctly wrote that:
Panic selling often happens during stock market dips, and those who dump investments may later regret their decision.
The bigger issue, however, is getting back into the market after a “freak out,” according to research from the Massachusetts Institute of Technology…
More than 30% of investors who panic-sold assets after previous downturns never got back into the stock market, as of Dec. 31, 2015, the paper found.
It’s a problem because those who leave the stock market and don’t re-enter miss out on the recovery. In fact, the best returns may follow some of the biggest dips, according to research from Bank of America.
Since 1930, missing the S&P 500′s 10 best-performing days every decade led to a total return of 28%. However, someone who stayed invested through the ups and downs may have a 17,715% return, the company found.
The worst part is how, more often than not, investors who give into fear and sell into weakness are usually the ones who later give into FOMO (the fear of missing out) and buy back in after the markets have roared much higher, putting their invested capital at undo risk because they’re chasing momentum.
In short, fear drives most investor sentiment. To find success in the market, you have to figure out a way to overcome that urge.
I’ve been around the block a time or two by now, and I’ve heard many investors tell success stories about timing. How they sold their shares at the top and then bought them back lower.
People love to brag about such accomplishments, which is understandable. But it creates a false narrative.
What they don’t go on and on about at cocktail parties are all the times they market-timed wrong. They don’t tend to talk about all the gains they missed out on. They don’t brag about their mistakes.
They sweep those under the rug and conveniently forget about them altogether.
Timing market tops and bottoms is a fool’s errand. I can’t tell you how many times I’ve typed that sentence before. Yet it remains as true today as it did the first time I wrote it.
Therefore, rather than fall prey to fear or the temptation to trade in and out of markets at sentimental whims, I wholeheartedly believe that it’s in the vast majority of individuals’ best interests to simply pick and choose high-quality companies to partner with over the long-term. That way, they can benefit from the strong fundamental growth that one can expect to see from blue-chips over time.
If you’re interested in adopting a conservative, disciplined, income-oriented strategy that focuses on long-term compounding and reliably increasing passive income streams to shelter yourself from market related fears, then please check out The Intelligent Dividend Investor.
This is a newsletter I run, which comes along with one actively managed portfolio, real-time trade alerts, weekly portfolio updates, and a monthly dividend growth investing-centric newsletter.
Since launching in March 2020, the IDI portfolio has maintained a perfect dividend growth record, beating our benchmark by a wide margin. With performance like that, it’s easy to be confident in the dividend growth strategy behind it…
And therefore avoid fearful mistakes.
