Learn about Dividend Paying Stocks
Dividends, dividends, dividends. It’s sounds great, and it certainly can be — buy solid blue chip stocks or dividend payer ETF’s, sit back and watch the dollars roll in.
So what’s the problem?
Dividend stocks do NOT offer protection of your principal. Why is that a problem?
Because the reality is most people have trouble sitting back and watching investments lose value every week or even every day, which happens during bad bear markets even if you are invested in blue chip dividend payers for your retirement income.
Between 2008 and 2009 dividend “royalty’ suffered along with the S&P 500. Some companies even went bankrupt. Have a look.
|“Blue Chip” Dividend Payer||Great Recession Peak to Trough Price Change|
|Proctor & Gamble -42%||-42%|
|* = Basket of Dividend Paying “Royalty.” So much for Diversification.|
Eastman Kodak stock never recovered and eventually went bankrupt. It’s stock trades at around $0.20 per share in 2016.
Washington Mutual was largest bank failure in American history. More huge bankruptcies were on the way (Merrill Lynch, AIG, GM, etc.) when the US government began to intervene. Oops!
So for this risk, what did this portfolio pay out in income return pre-crash? About 3.5%.
If you put $10,000 into each of the above “Blue Chips” you collected about $280 a year in dividends, but the value of your $80,000 portfolio dropped by a whopping -$47,200 during the Great Recession. Could you have really watched your portfolio drop -59% in less than a year and not decided to sell to protect what was left?
What if you were retiring in the next two years? At what point would you have reacted and stopped the bleeding? If you are like most people, it would have been around the -40% to -50% down when many retail investors sold in 2008 and you would have crippled your retirement forever.
Don’t misunderstand – high quality dividend paying companies can be a good solution. But are they the best solution for YOU?
Ask yourself if you would have been happier earning 3% – 5% income for that same $80,000 investment, but without risking your investment in the stock market? What if that 3%-5% was highly likely to increase in the future? That’s a fixed index annuity. Learn more about fixed and fixed index annuities by CLICKING HERE.
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