Is It Time for A Change?
Well the bears are winning again. The market is dropping very quickly and I am cool as a cucumber. If you are freaking out right now, that's alright, just remember this is how life as an investor goes. I just watched a very interesting video by the YouTube channel Dividend Bull where he discussed the market in its entirety. He made some very interesting points, and brought up something I though would be very interesting to talk about: "What do we do if the market trades sideways?"
For those who don't know, when the market trades sideways it means that the price of stocks bounces around, but remains near the same price-point for a number of years. This typically is a very bad sign for anyone who actively invests, as the money that can be made is much less. Long term investors make no return on their holdings. The video brings up a lot of good points from seasoned investors who see the signs of this type of market growing stronger. It got me thinking, what would I do if this were the case?
For starters my portfolio would change quite a bit. Right now I have a lot of money invested in long term holds. These are stocks I plan on owning forever, or until I need more money and I can sell them for a nice profit. Short term stocks could still be profitable, if you know how to play them. Now the main winner during these kind of market, which you can guess based on the YouTube channels name, is dividends.
Dividend stocks do extremely well in these markets because they don't need price appreciation to make you money. The dividend, as long as it stays consistent, will keep paying you while the stock market isn't moving. For instance if we compare Amazon stock to a covered call ETF like $QYLD. Amazon stock will continue to bounce around the $130 mark. Now it may hit $150 and it may fall to $110, but all in all over the time span of a few years it would remain the same price. Unless you are a master at timing the market which no one is, (yes including those ads we get where they say they know everything about the market and can teach you what you need to make millions!) you will sit there with your money decreasing in value due to inflation.
Looking at $QYLD the price of the stock would shift, some day going up and some going down. Each year remaining near the same price as the year before! The big difference is the dividend. $QYLD pays a 10% dividend. This would continue during the time when the market is stagnant, and so you would still get a return on your investment from these types of stocks even with no price appreciation. Not to mention that these stock prices may increase over time if everyone catches on to what I'm telling you!
In reality the market is really scary right now. With more talks of a recession and less hopefulness in retail investors, I'm afraid we aren't near the end of this mess. That being said I am going to begin to grow my dividend portfolio and use this time in the market to grow my account. Let's say the market starts to go higher and higher, well great!! My stocks will go up plus, my dividend stocks will follow! This is a much less risky strategy which I am not use to doing. I'll be honest though, I think this type of trading is boring! I'll always keep some money for penny stocks and small caps to keep life interesting.
Here is the link to the YouTube video! I enjoyed watching it and I'm sure you would too.
Hope you guys enjoy trading this week!
Here is a photo from the video, created by: HartfordFunds.com
This photo shows the power of reinvesting dividends! Notice the final values of each category!