In the era of Trump, it’s not just our political system that experiences some serious turbulence.
True, a single tweet from the president can grind the entire news cycle to a halt and send Washington into convulsions on a moment’s notice, but the market has long been just as volatile and responsive to political maneuverings in our nation’s capital.
Even as the economy continues to soar, the Dow Jones still pulls the occasional nosedive, and this can force investors and retirees into a rather uncomfortable position: how to invest their money in a way that leaves them and their children secure for decades to come, without sinking everything in a high-yield tech stock that might go belly-up any day. At the same time, investors and retirees don’t want to hide it away in a safe, stable, low-yield bond that won’t give them enough money to pay the bills.
In his new book The Case for Dividend Growth: Investing in a Post-Crisis World, David Bahnsen — the Chief Investment Officer of the Bahnsen Group wealth management firm — proposes one possible strategy for the risk-averse investor.
The book paints a picture of 2019 as a “post-post crisis” era where, after the tech bubble burst in the early 2000s and the housing bubble of ’08 burst, investors have been cowed by market volatility into a low-yield fixed-income strategy of investing.
The solution? Dividend growth investing, a rather timeless strategy used by many investing greats like Benjamin Graham, the father of traditional “value investing.”
While many retirees conceive of their investment strategy in a single dimension, namely, that of income vs growth, Bahnsen calls for investors to prioritize their growth-of-income.
Bahnsen explains how dividend growth investing works not only to shield people retiring from the volatility of the market, but also helps people saving capitalize off market fluctuations by reinvesting dividends.
He says investors can achieve this minimum risk-maximum reward equilibrium by investing in stocks with high dividend yields and higher current income, as well as companies with growing year-to-year cash flow that are on a path of long-term, sustainable growth. He also advises choosing those companies with a payout ratio—the percentage of earnings that are distributed as dividends—that isn’t too high or too low, as a means of ensuring both company and dividend growth in the long term.
Like any investing method, Bahnsen’s strategy doesn’t promise risk-free financial success.
For one, dividend growth investing ultimately has a lower ceiling on gains than a high-growth stock strategy. Moreover, there’s no guarantee that a company will grow steadily over time—it might slowly decrease as its growth model changes, and that could mean the investor is getting strung out on low returns for a considerable amount of time.
Ultimately, Bahnsen’s back-to-basics advice, while as sound as any an investor is likely to come across in the crisis-traumatized era of Trump, is subject to some additional risks not present in other forms of investing. If an investor is willing to put in the time to carefully research companies before investing in them, as well as monitor their growth over time, they may just find that Bahnsen’s strategy is the right one for them.