Courage in These Troubling Times

"Courage is the first of human qualities, because it is the quality that enables all the others." Aristotle

Professor Emiritus, and our lead stock analyst, Dr. Tom Howard, recently published a new essay on the good things that might happen to us when we invest in stocks that pay dividends. The benefits are tremendous, especially if we want to provide ourselves a retirement income.

CLICK HERE to read the research paper.


This research shows that the stock prices are bouncy but that the dividends are not. In fact, the dividends can potentially grow at a brisk pace. Dividends have grown faster than inflation has grown.

If we could buy a portfolio of stocks that pay a dividend that is large enough to provide us an income, the research shows that our income is likely to grow fast enough so that we can keep up with inflation and not lose our purchasing power.

So let's all put all of our money in dividend paying stocks, why don't we? Several reasons.

First, stock prices are bouncy. We've got to have courage to weather the storms when prices decline over short periods of time. This is extremely hard to do, but even the Great Recession of 2008 ended four years later with prices at all time highs. So price declines are temporary while the dividend growth and price growth can be substantial.

Another reason we don't put all our money in dividend stocks is because a company that declares a dividend could stop paying that dividend. The research shows that this happens only 4% of the time. (10) You can minimize this small chance of failure with diversification, or buying lots of dividend paying stocks.

Finally, recency bias is a major reason why we don't make good decisions. The recent stock market decline of 2008 caused both prices and dividends to decline. The research shows that a person who retired at the worst possible time, right before the crash, and depended upon these dividend paying stocks for income, would have seen their income decline perhaps 25%. Professor Howard's answer is to put money into cash and spend it down instead of selling the stocks to provide the income. As simple as it sounds, he shows that keeping only 6 months of income needs in cash provides plenty of security, even during the Great Recession of 2008. (10)

Take courage! As your wealth managers talk to you about investing money in the stock market in these troubling times, they are keeping your long-term interests at heart. This research gives us confidence that dividend paying stocks may be a good solution for the long journey.

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