The stock market is filled with crazy risk! My dividend growth investing strategy has always been about mitigating risk, providing a growing stream of passive income that can be used to pay my bills. Today's video, in response to a recent subscriber question, dives into my multi-tiered dividend stock diversification strategy. Get ready to reduce risk and sleep well at night!
I start out today's video with a fun book, Poor Charlie's Almanac, a book by Charlie Munger (Warren Buffet's famous business partner). According to a subscriber, this book talks about preparing in life and investing for the unexpected. Today's video is all about preparing for the unexpected in one's dividend stock portfolio.
It's my opinion that most people are not diversifying properly! Rather than starting at a macro level, many investors are looking at diversification from a bottom-up standpoint. Many people with their bottom-up strategy are buying lots of stocks but not really diversifying risk at all. Today's video is all about diversifying, the right way!
In my opinion, dividends inherently take away risk. Rather than focusing on capital appreciation (and relying on capital appreciation to pay the bills), dividends offer investors the ability to completely disregard capital appreciation (and stock prices). Dividend investors get to focus on growing streams of passive income - how magical. Whether it's using dividends to pay for coffee for life, paying one's property tax bill, or covering all expenses - each check brings real, tangible value to the dividend investor.
In terms of my specific dividend investing strategy, here's how I do it:
* I like to diversify by time. Meaning: I do not deploy all my money at once. Rather, I like to dollar cost average. I like to slowly deploy money over time so I mitigate risk of deploying at a market top. The more money I have to deploy, the slower I go. (With smaller amounts of money, I usually just go all in at once.)
* Before choosing particular stocks, I enjoy diversifying by industry. My top-down, macro strategy initially focuses on industries, not stocks. After all, I don't want to buy a ton of stocks that all do the same thing. Rather, I'm all about representing a broad array of different industries throughout my stock portfolio.
* Once I have my industries selected, I then pick stocks within each industry. In broad-sweeping industries, like consumer non-cyclical, I like to buy lots of stocks (since it's almost an industry of industries, and I love these types of stocks so much). In other (more narrow) industries, I may not require as many stocks. Here, I also share a good chunk of the stocks I own in my personal portfolio.
* Worth noting, I also diversify by market cap. I like to own a good mixture of small cap stocks, mid caps, and large cap stocks too. Sometimes, large caps are so big that they inherently carry some great diversification, within the company itself.
* Last, I enjoy having a good number of positions. I'm at 37 right now. I cannot foresee myself adding too many more from a management standpoint. That said, I really like having this many from a risk mitigation standpoint.
Today's video mentions a ton of other videos here on PPC Ian. Here are some links to those investing videos.
Here's how I would hypothetically invest $50,000 if I were starting over:
Here's how I would invest my first $1,000 dollars if I were starting over:
Here's what dividend reinvestment plans are all about:
Here's my core, medium, and small stock strategy:
I have historically avoided an emergency fund, and have gone "all in". Here's why:
I cannot stop buying dividend stocks:
Learn about my favorite dividend stock picks of all time in this playlist:
Disclosure: I am long Johnson & Johnson (JNJ), Pfizer (PFE), PepsiCo (PEP), Procter & Gamble (PG), Kimberly-Clark (KMB), Clorox (CLX), General Mills (GIS), Campbells Soup (CPB), United Technologies (UTX), 3M (MMM), McDonalds (MCD), Starbucks (SBUX), Southern Company (SO), Realty Income (O), BP (BP), Air Products & Chemicals (APD) and IBM (IBM). I own all of these stocks in my stock portfolio.
Disclaimer: I'm not a licensed investment advisor, and today's video is just for entertainment and fun. This video is NOT investment advice. Also, I'm not a tax advisor and today's video is NOT tax advice. Please talk to your licensed investment advisor before making any financial decisions. Please talk to your licensed tax advisor before making any tax decisions.
All content on my YouTube channel is (c) Copyright IJL Productions LLC.