How to Get Rich as Your Portfolio Collapses
Losing money is the quickest way to income riches.
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Losing money, the quickest way to income riches? Wait, what? This may sound counter-intuitive at first. After all, most investors judge their success by how far their portfolio has grown in value, especially as measured against their favorite bench-mark, like the S&P 500 index.
Nobody really likes to lose money. Especially when a market correction lops 10% or more from your net worth.
But think of this for a moment: A crumbling in your portfolio value also translates to an amazing opportunity to increase your monthly passive income.
This is the true and meaningful silver lining to any stock market debacle. It is how smart investors get ahead of inflation and generate greater amounts of passive income with each and every market correction and crash.
Are you ready to profit from the coming crash?
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The Way Forward
In order to get ready, it’s necessary to start accumulating cash now to deploy capital into stock at cheaper prices and accidentally higher dividend yields.
It means turning off automatic dividend investing in your portfolios and mutual funds, for now.
It means, instead of reinvesting dividends in your brokerage account now, accumulate dividends in cash. Move this cash to your brokerage money market account now to generate 5% in additional cash.
Build cash.
Saving greater amounts of income from work will build cash for this purpose, as well.
Instead of saving 5% or 10% of earnings, raise this percentage to a more meaningful percentage, in the range of 20% to 30% if your budget allows.
Cut spending on all non-essential purchases to build your war chest.
Put off large purchases to raise additional capital. If your current old clunker is serving its purpose of daily transportation, no need to trade up now for a souped-up or high-priced import. Soon, Trump-initiated high tariffs on imports are going to inflate car prices by 20% or more, anyway. Say no to these tariffs simply by saying no to these types of purchases.
Put off or cancel expensive vacations for now.
When to Deploy Cash?
Once you’re satisfied that a 10% or greater correction has occurred, begin to layer in slowly to your favored stocks that will now be yielding 7% in cash-dividend payments instead of 5%.
This will immediately grow your income on these positions by 40%. It’s a smart and easy way to give yourself an immediate raise, much higher than you’ll ever get at work.
Give yourself the means to control your income and you’ll have a fool-proof way to defeat inflation on a very personal level.
Here’s an Example
Instead of jumping in now at record stock market prices, simply wait for the inevitable sell-off. Short-term thinkers always want to rake in cash to satisfy their lust for profits and boost their egos. When this moment comes, it’s time to pounce on the bargains you’ve sought to add to your portfolio.
Why buy quality names like Altria (MO) at its 52 week high of $56.32 to receive its $4.08 annual dividend when you could patiently wait for the price to correct near its 52 week low of just $39.25?
Look at the difference in the yield and income at these price levels:
Notice that on a $10,000 investment, at the higher price point, you’ll earn just $724.43 in annual dividends. But if you lie in wait, ready to pounce in the next correction, you can grab a much higher yearly income of $1039.49 from the same $10,000 amount invested.
$1039.49- $724.43 = $315.06
Which annual income would you prefer from this quality investment, $724.43 or $1039.49?
$315.06/ $724.43 = 43.5%
Deploying cash at a lower price point can get you more than 40% extra income.
Buy cheap, get rich!
Your Takeaway
If you’re a long-term investor interested in growing your income to supplement your Social Security benefit in retirement, consider this strategic approach. As long as you can tolerate temporarily losing money, seeing the value of your portfolio melt down, try exercising patience. Understand that this presents you with your next big opportunity to dramatically increase your income.
Other articles readers have found valuable reading:
How To Use Dividend Yield as a Reliable Sell (and Buy) Indicator
It’s Not Just What Stocks You Own; It’s Where You Own Them
Potential Recession? Load Up on This Defensive Stock for an 11.5% Yield
Best,
George Schneider
Founder and publisher
Retirement: One Dividend At A Time
Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.
Disclosure: I am long all RODAT Portfolio names. The Portfolio continues to build dividend income with reliable, dependable equities which have long histories of increasing the dividend.
Copyright ©2024, George Schneider