Global stock markets have turned challenging yet again. Market downturns are inevitable, but since educated investors expect them, there is no need to panic. All investors have learned after the 2008 Financial Crisis, and more recently the 2020 Pandemic, that the key to successful investing in the long-term, is not to sell into a market downturn. If anything, if cashflow permits, a wise investor will increase periodic investments after markets have dropped 15% to 20%, or more.
Personally, during times of declining stock markets, I find it helpful to focus on the dividend income my portfolio is generating instead of the total value.
Interestingly, during the recent stock market decline, TheAnswerIs.ca Model Portfolio dividend income has actually gone up! In Q2 2021, TheAnswerIs.ca Model portfolio generated $790.85 in dividends, and in Q2 2022, dividends increased to $1,039.11. Dividends increased even as the market declined.
Now dividends can decline during a recession, and we could well be on the cusp of a recession, but on a percentage basis, dividends typically do not decline as much as the total value of a portfolio. Focusing on portfolio income, and not the portfolio value, helps an investor navigate a stock market storms.
Over time, dividends rise, and those dividend increases drive portfolio capital values higher.
For example, for the year July 1, 2017, to June 30th 2018, the Model Portfolio generated $2,563.20 of dividend income. However, for the most recent year, July 1, 2021, to June 30th 2022, the Model Portfolio generated dividend income of $3,920.32, an increase of 53%.
This dividend increase is similar to the total value increase in the Model Portfolio of 52.15% noted above since inception in October 2016.