Why Do We Invest When We Have No Control?
Even during the most trying times for the market, it is important to understand why it is that we are investing our hard earned cash into public companies of which we have little to no control over.
It’s true. We are buying pieces of companies, in the form of common stock, that we have no control over the operations of the company.
Basically, we are saying “Here, you guys take my money to invest in your business and I will sit back and wait for you to do a good job so that I can get a return on my investment”. When we think of it this way, investing in common stock makes little sense – if any sense at all.
Many investors prefer to invest in their own businesses whereby they have control over the operations of the company, and thus, the outcomes of the business. This makes intuitive sense, but what we as dividend growth investors are trying to do is to produce constantly growing retirement income of the completely passive variety.
So What’s The Difference?
The major difference is that while we lack control of the companies that we buy stocks in, we also relieve ourselves of the responsibility of running those companies profitably. This creates a passive and growing income stream.
We all know that running a businesses takes a lot of time, skill, effort, and energy – as well as a little luck. This is time, energy and skill that most of us do not have. However, we can participate in the efforts of others by purchasing dividend growth stocks and reaping our small, but growing, dividends.
Work One Time, Get Paid Forever
Theoretically, and many times practically as well, we can input one unit of work and get paid forever. Indeed, our main goal as dividend growth investors is to work once (evaluating and purchasing a dividend growth stock) and get paid forever in continuous dividends…ideally with annual raises!
The title of this article states that our retirement income is on sale. While this is true, we do have to be very careful to do our due diligence in bear markets to pick out stocks that have been unjustly beaten down and whose dividends and future earnings are likely to increase.
While having control over one’s own business can be profitable and offers the ability to make changes to react to market conditions, it also concentrates the investment.
As much as we preach about diversification and asset allocation in our stock portfolios, it is easy to forget the need for diversification when we talk about our own businesses.
Investing in the stocks of dividend growing companies allows for the diversification of funds among several high quality companies that meet the requirements of our dividend growth model. This diversification will allow for multiple consistently growing income streams which is an ideal way to fund retirement.
The current market has given us dividend growth investors the opportunity to identify our favorite dividend growth stocks and purchase them (some at prices we have not seen in our lifetime).
I’m not calling a bottom for stocks here, but I am confident that we are closer to a bottom than we are to a top at this point. Regardless of the direction of the market tomorrow, there are stocks out there that have been unjustly beaten down and are offering consistent and even growing dividends.
For more on how to find these stocks, check out my article on how to choose dividend growth stocks and then stop by The Dividend Network for stock analysis from the top dividend bloggers on the internet.