Dividend investing
The recent events on the stock market cause many if not all of us to review our investment strategy. When markets fall as they have during the last couple of months it is a very difficult time for many of us. If we could accurately time the markets then we would make a lot of money, however, timing the markets for most of us is not something we have the necessary time and knowledge to be very successful at.
So is there an investment strategy that allows us to sleep at night, meet our long term goals and keep us somewhat sane during times such as these. Upon consideration of several strategies I have arrived at a method that I think will in the long term be the soundest of the strategies.
Invest for dividend growth
In its simplest form the strategy that will develop the most reliable source of wealth in the long term is the strategy of investing in blue-chip companies that produce steady increases to dividends over the long term. It should be possible to find companies that will double the value of their dividends every five years. As such you will not necessarily be investing for capital appreciation of a stock but for the steady growth in earnings and consequent growth in dividends.
Investing for dividend growth is of necessity a long term investment strategy. There is no get rich overnight aspect to it. One must be patient and allow the growth of dividends to take place over time, however, the strategy when well implemented is as close to fool proof as any strategy out there. For instance, a dividend based portfolio paying $1000 a year forty years ago would today pay in the neigbourhood of $250,000 a year without any reinvestment of the dividends. This assumes a doubling of the dividends every five years, which has been the case for a number of stocks.
Given a bear market like we are now experiencing, the capital portion of our investment could be cut in half within a few months. Unless one was to have sold and waited to repurchase then the capital portion of the investment will have disappeared and is no longer available for spending, which is after all why many of us invest. Investing for dividend growth though just means we can buy more for less as we will hold these stocks for as long as the company is viable and instead spend only the dividends.
The dividend portion of your investment will however, continue to pay dividends. They may slow down a bit for a period of time but you will continue to have dividends being paid into your account even as the stock price takes a dive. These dividends can then be spent or reinvested at a lower stock price.
The general rule that I have come to live by, in order to sleep soundly in all markets, is “Only buy stocks that pay dividends”. Additionally, “Only buy stocks where the dividends grow”. The better the dividend growth, the better the annualized rate of return will be.
What makes a person happy?
What is happiness? Am I happy? How do I know if I am happy? I have been reading a book written by Tal Ben-Shahar called Happier: Learn the Secrets to Daily Joy and Lasting Fulfillment, that looks at some of these questions. It started a fair bit of soul searching for me. Am I doing all that I can to be happy? Is happiness a truly worthwhile and legitimate goal? What about sacrifice and duty, are they not important for living a good life? Ben-Shahar postulates that happiness is really the ultimate currency. Happiness is the fundamental element that is the measure of success in life. If a person does things that result in their happiness then they are likely living their life to the fullest.
A litmus test for happiness
What is happiness? In his book, Ben-Shahar says that the combination of pleasure and meaning taken together are essential ingredients for happiness to exist. One without the other is not adequate to qualify as happiness. As I started to think more about what happiness is I developed my own litmus test. I realized that when I am happy I say to myself on a regular basis as part of my self talk, “I love life”. At these times I realized that I am having fun and working toward a goal at the same time. The fun is the pleasure part and the goal is the meaning part. Both parts taken together equal happiness. The spontaneous expression “I love life” is an acknowledgement and appreciation of the vehicle for my happiness which is life itself.
Four different approaches to happiness
Ben-Shahar identifies four major orientations to happiness that are actually combinations of pleasure and meaning. I am taking the liberty to summarize them as such. Hedonism is pleasure without meaning. The rat race orientation is meaning or goal pursuit without pleasure. Nihilism is the absence of both pleasure and meaning. Finally, there is true happiness which is pleasure and meaning (goal pursuit) taken together.
At different times in my life I have experienced all four of these orientations. What I now realize is that the experience of happiness is only really possible when I consciously combine my need for pleasure and meaning together. Does this mean that I can do things that give me pleasure at one time of the day and things that give me meaning at other times? Yes, I think that is possible. For instance I can work at a job that provides the means for me to support my family which gives me meaning and then spend time with my family which gives me pleasure. This may certainly qualify as happiness, however, there is a danger that one may be living in the rat race for the job portion of their life if it is not a source of pleasure as well.
A better more durable way to approach the day would be to structure it so that all activities actually contribute to both pleasure and meaning. If you found your job both pleasurable and meaningful then it is more likely that you will experience happiness.
The pursuit of happiness is actually a somewhat problematic statement. It connotes a future orientation, that happiness is something that happens in the future. This reinforces the activity of the rat racer who structures his or her life to accomplish goals that bring future pleasure. Certainly the rat racer may have built meaning into her life but without pleasure there can be no happiness. The key is to structure your life so that happiness is experienced on a regular basis.
By keeping in mind that happiness is the ultimate currency we will do things that will ensure happiness both today and tomorrow, that will incorporate both meaning and pleasure at the same time. For instance, we may reduce our TV watching, as although it may bring pleasure, it does not necessarily incorporate goal pursuit which is strongly associated with meaning. Working at a job that does not offer any pleasure may be re-evaluated and one that incorporates both pleasure and meaning be undertaken instead.
What about duty?
Of course, some of these changes are quite large undertakings, such as changing a job or occupation. Sometimes it is necessary to maintain a job or activity as part of a commitment you have made to another, particularly, our children, but why stay in an unhappiness rut if a change is possible. In fact, since our feeling of happiness or unhappiness can affect how we interact with others, the question of what impact that has on our children may be an important one to ask. Perhaps making a change will be better for both you and your children.
Sometimes a person has the question about duty. I know that in my own life I have sacrificed the experience of happiness in exchange for the performance of duty, particularly, for my children. My children have been a great source of happiness throughout my life but I also have persisted with activities and actions that were not pleasurable in order to carry out the commitment I made to raise my children. All parents will I am sure have had a similar experience to some degree, however, it should be kept in mind that the question of denying or postponing our own happiness may have negative effects on the children as well. I have needed to answer that in my own life as I stayed in an unhappy marital situation out of sense of duty longer than was likely good for the children. When it comes to raising children the questions regarding our own happiness is often very difficult to answer.
Our spouses or significant others can be a source of a great deal of pleasure. Working with them we may increasingly build meaningful goal pursuit into our lives. Pursuing a meaningful goal with one that you share intimacy can bring immense pleasure and happiness into our lives. These relationships can also be a source of pain and unhappiness and If you are in a relationship that does not make this combination of meaningful goal pursuit and pleasure possible it may be time to re-evaluate the relationship and take steps to improve it or if there is abuse or addiction in the relationship the question of whether to stay must be assessed.
The experience of happiness at its most specific level will be different for everyone. People find different experiences pleasurable and different goals meaningful, however, the experience of both pleasure and meaning in our daily lives is a necessary pre-condition for happiness to exist. Tal Ben-Shahar in his book Happier has done us all a great service by pointing this out.