The False Dividend Dichotomy
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Investing is complicated.
(Wow Ryne, what an intro 🙄)
But it’s true! There’s so much grey area and so much conflicting advice. And there’s definitely more than one way to skin the cat, as I like to say.
As a result, we often try to simplify investing—and how it should be done—into neatly defined categories. We boil down complex situations into either/or scenarios.
While choosing between “this” or “that” can make certain things easier to digest, it also casts aside the nuance that is essential to investing. One common example of this oversimplification is the concept of “wealth accumulation” versus “wealth preservation.”
Typically, we’re told that younger investors should focus on “wealth accumulation.” The advice here is to invest more in growth-oriented stocks to build up your portfolio over time, potentially taking on more risk and volatility in the process.
On the other side of that, as you get closer to retirement, your emphasis should shift to “wealth preservation.” This stage is characterized by less risk and volatility, fewer growth-oriented stocks, and a focus on steady, stalwart companies to protect what you’ve built.
From what I’ve seen, the conversation around this topic usually paints these two ideas as being mutually exclusive: you’re either building wealth or you’re protecting it.
But I’m not convinced that they are mutually exclusive. Why can’t you do both? Why can’t you build wealth and preserve what you already have at the same time?
In my experience, you can! It’s totally possible to have your cake and eat it too, and doing so simply comes down to establishing a balance—one of my favorite “B” words.
For example, my portfolio has quite a few stocks with the potential to deliver growth, like Visa (V), Williams-Sonoma (WSM), Snap-on (SNA), and Clear Secure (YOU).
These are your classic dividend growth stocks. Although they may have lower starting yields, they make up for it with the potential to deliver strong dividend growth and total returns over time.
At the same time, I balance the more growthy side of my portfolio with stalwart companies that provide consistent (and still growing) income and returns. These would be companies like Procter & Gamble (PG), Johnson & Johnson (JNJ), Altria Group (MO), Enterprise Products Partners (EPD), and Realty Income (O).
Overall, I think this balanced approach gives me the best of both worlds.
During years when the market has gone up, my portfolio has generally kept pace, with this last year being a good example. My performance during this time has lagged the S&P 500, but I’m still able to capture some upside when times are good.
Source: Charles Schwab | 1Y Performance
With that said, the real test comes when the market heads south like it did in 2022. While the market saw a pretty hefty drawdown that year, my portfolio showed a lot more resilience and was basically breakeven.
Source: Charles Schwab | Performance in 2022
I think this kind of downside protection is a type of outperformance that’s way too overlooked.
Most investors only think about “beating the market” in terms of higher returns during bull markets but preserving wealth during bear markets is just as important. In fact, it can be a huge driver of long-term success, and I don’t see why I need to wait until I’m sixty-five to preserve whatever wealth I’ve built so far.
Source: Charles Schwab | Performance since 10/15/2020 (Annualized)
Now this may sound odd, considering I’m not really a sports guy, but I like to think of my portfolio as a football team.
On one side, I have my offensive players—the dividend growth stocks that will put more points on the board (WSM is up 24% just today as I’m writing this, which is insane).
On the other side, I have my defensive players—the stalwarts that will help protect what I’ve already built. Both play different but essential roles in the game plan for my portfolio.
Without this balance, it’d be like building a football team entirely out of quarterbacks and wide receivers. I grew up playing Madden, so I get the temptation to only throw Hail Marys, but the team would fall apart without linebackers, defensive ends, or even a reliable kicker.
The moral of the story here is that balance can be beneficial.
An all-weather approach to investing can help you build a portfolio that performs well during the good times and holds its ground during the bad times. That, in my opinion, is a winning formula, and it’s necessary for staying in the game for a long, long time.
With all of that said, I’d love to hear from you: Does your portfolio have more offensive players, defensive players, or is it pretty evenly split? Write to me here and let me know.
And click here if you want to learn about the top five largest positions in my portfolio (and what they pay me in dividends).
Dividend Investing Democratized
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Overall, if you’re looking for something with more functionality than a spreadsheet, getquin is definitely worth checking out and is free to join.
Also, you can follow me on getquin (@ryne) to see all of my posts, check out my portfolio in real-time, and see all of my purchases + dividend payments as they come in.
IN MY PORTFOLIO 📈
Track your portfolio for free with getquin. You can also follow mine there (@ryne) to see all of my purchases, dividends, and other updates in real-time.
ICYMI 🎥
5 Things To NEVER Do With Your Dividend Portfolio
Here on the channel, we talk a lot about why dividend investing is awesome, but we don’t talk as often about the things you shouldn’t do as a dividend investor or the things you should be cautious about.
CAREFULLY CURATED 🔍
📺 Raw and Uncut - Over the past couple of weeks, I've been meeting up with Ari Gutman to have casual, unscripted conversations about investing. There's no script, no plan, and no agenda—just a free-flowing discussion.
🎧 Signals and Stability - A deep-dive on American Tower Corporation (AMT), which is one of the growthiest REITs out there with its 12.7% dividend growth rate.
🎧 Up In Smoke - I've got a second podcast for you to check out this week — this one from the Preferred Shares podcast which dives into the evolving tobacco industry, rising global nicotine demand, and the stubborn resilience that sets tobacco apart despite being constantly held to the flame.
SINCE YOU ASKED 💬
"What would you say should be the first two goals new investors should accomplish in their first year?"
- Carlos | YouTube
This is a fantastic question! There are so many different things that come to mind, but here are what I believe are two important goals to focus on during your first year:
Your first goal should be to establish an unbreakable habit of contributing to your portfolio on a regular basis—whether it’s weekly, monthly, or any other frequency you prefer.
The reason I think this is so important is that early on in your investing journey, your portfolio isn't big enough yet to where the compound interest is driving a lot of growth, so most of the heavy lifting is done by you and your contributions.
Not only will consistency in this department be the main driver of your portfolio growth, but it will also build momentum. Watching your portfolio’s value increase and seeing your dividends grow—even by a few dollars at a time—can be incredibly motivating.
After a year of consistent investing under your belt, you’ll be able to look back and see how far you’ve come. And if you're anything like me, this will inspire you to contribute even more as time goes on.
Now your second goal—which probably won't be very fun at first—should be to dedicate at least 20 minutes a day to reading. This could mean diving into a book, reading articles on platforms like Seeking Alpha, or even going through a company’s SEC filings. The specific material doesn’t matter as much as the habit itself.
Establishing this habit is important because investing is a skill that’s honed over time, and reading consistently speeds up the development of that skill set. In my opinion, building the habit of reading (and therefore learning) will pay dividends—both literally and figuratively—for years to come.
If you’re looking for book recommendations to kickstart this habit, here are my top three picks for new investors:
Warren Buffett and the Interpretation of Financial Statements – This book is a fantastic teacher for learning how to read financial statements, which is an essential skill for every investor. Plus, each chapter is only a page or two, so you could easily go through one chapter per day.
The Psychology of Money – This book will help you develop a healthy mindset around money, and is great for understanding both investing and life, and how the two relate to each other.
Investing: The Last Liberal Art – Investing is a multidisciplinary activity, and this book breaks down a lot of the big ideas from various subjects such as physics, biology, psychology, literature, and more, and applies them to investing.
Now you may have noticed that neither of these goals have anything to do with hitting a specific portfolio size or achieving a certain level of dividend income. That’s intentional.
The reason for this is that I believe that building a successful portfolio over time comes down to a culmination of small, habitual actions. The consistency of these actions—both in contributing to your portfolio and in learning—is hard to maintain for many investors, but will compound into something much larger over time if you can stick with it.
So with that, focus on creating these two habits in your first year, and the rest will follow. The sooner you start, the better off you’ll be.
Have a question? Ask me here to see it featured in an upcoming newsletter.
HOT TAKES 🔥
In last week's newsletter, I asked readers which businesses they consider to be "economic franchises." Here are some of the responses:
Kristian said: I think we could consider car manufacturers to be an economic franchise, especially here in the U.S. I don't know if it perfectly fits the model since one company doesn't produce all the cars people need, but in a country where all of the infrastructure is designed around cars, they definitely aren't going anywhere.
Clay said: WMT and MSFT. Here’s to good returns!
LAST WORD 👋
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