This wasn’t an article I was planning to write, but a number of emails about my thoughts/concerns on recent stock market volatility prompted it.
I’m going to keep this article as short as I can, which will only serve to reinforce the broader point I’m going to quickly make.
That point is this: the recent stock market volatility, which is unprecedented by some metrics, didn’t even form a blip on my life’s radar this past week.
And stock market volatility shouldn’t only make very little difference to a dividend growth investor’s life in general, but it should make practically no difference whatsoever (good or bad) to a dividend growth investor living off of dividend income.
As a 35-year-old dividend expat who is in a position to live off of the dividend income my six-figure dividend growth stock portfolio generates on my behalf, stock market volatility is almost like an abstract concept that exists on another plane. It has very little relativity to my day-to-day life. Worrying or thinking about the changing winds in the stock market would, to me, be like worrying about the changing winds on Mars.
I’m going to discuss how I personally think and feel (or, rather, don’t think and feel) about stock market volatility generally – as well as more specifically about the most recent volatility that saw the DJIA drop 1,000 points twice in one week.
While many of you readers aren’t in the same position as I am (financially independent and living off of dividend income at a young age in a foreign country), this article should serve as an inspirational and directional template of sorts in your own lives as you march closer to financial independence by saving and dividend growth investing.
Short-Term Volatility Is A Long-Term Opportunity
That headline says it all.
I’ve said it before, and I’ll say it again: short-term volatility is a long-term opportunity. That’s how any long-term value-minded dividend growth investor should think. A lower stock price should improve your long-term total return potential, increase your yield, and lower your risk (relative to a higher price).
As I’ve noted numerous times over the years, I almost always prefer lower stock prices. It would make me very happy to see the broader stock market – and my own portfolio – drop by 10% or 20% from here.
If you like a stock at $X, you should, all else equal, love it at 20% less than $X. This is a no-brainer.
It’s always baffled me how people let themselves get all wound up and affected by stock market volatility. When prices are up, they want to buy. When they drop, they want to sell. It defies logic in any other setting in life. And this is just one reason why most people aren’t financially independent in their 30s.
However, I’m no longer aggressively buying stocks on a regular basis. I’m in a different position in life now than when I was aggressively buying stocks over a six-year stretch (when I was still chasing financial independence).
And so stock market volatility is something that I simply don’t pay attention to or care about (nor did I ever), although I do still prefer cheaper stock prices because it means the very companies I own can buy their own stock back at cheaper prices/valuations.
I Don’t Worry About What I Cannot Control
Stock prices, like most things in this world, are out of my control.
To spend even one second worrying or thinking about what stock prices are doing from day to day would not behoove me at all.
In fact, I view the idea of worrying about things that I can’t control as a major opportunity cost, which limits resources I could better allocate toward things I can control – things that will probably improve my life and the world around me.
Watching the stock market and then reacting in some kind of physical or emotional way is like watching some 24-hour news cycle on what some politician said and stressing out about it. It’s nonsensical.
If people spent less time worrying about things they can’t control, they’d spend far more time maximizing the things they can control.
If it’s not in my immediate sphere of influence, it may as well be on the other side of the universe.
Different News Cycle In Southeast Asia
That brings me to my next point.
Now, this point is a bit specific to being a dividend expat.
I haven’t yet had a chance to bring this up, but I do now.
The news cycle/focus here in Asia is totally different from the USA. And I find it a wonderful respite. I thoroughly enjoy this benefit of living here.
I regularly watch Channel NewsAsia (based out of Singapore), which I can roughly equate to watching CNBC in the States.
Well, here are a few keywords you’ll hear just about every minute if/when you watch CNBC during the day: stocks, stock prices, politics, Washington D.C., chaos, stock market. Every other second, seemingly, it’s an update on the stock market.
Here are a few keywords you’ll hear if/when you watch business news channels (like Channel NewsAsia) here in SE Asia during the day: infrastructure, collaboration, integration, dynamic, technology, long-term strategy. Every other second, seemingly, it’s an update about some tech or infrastructure update somewhere across Asia.
While I was able to mostly avoid the news cycle in the US by not having cable TV for many years, I couldn’t completely escape it.
But I’ve now totally jettisoned that exposure to the constant pumping out of hysteria and mania. It’s quite refreshing. And I think about stock prices even less now that it’s not somehow, someway forced down my throat.
I’d actually say the stress of hearing about stock market volatility, even if you don’t care about it or seek the news out personally, is one of the biggest drawbacks of stock investing in general.
Being able to free oneself of that is phenomenal, as reduced stress in my life is one major aspect of my life that’s helped me lose quite a bit of weight in a rather short period of time and get in the best shape of my life.
If you’re going to be financially independent at a young age, you want a long runway to enjoy that. Avoiding the stress that stock market gyrations may put on you – even if you’re not totally aware of it – is one way to ensure that long runway of a happy and healthy life.
No Impact On My Daily Life
The stock market could be significantly up or down tomorrow.
Would it change my daily life in any way?
Not one iota.
I plan to write an article at some point discussing what an average day is like for me, living as a young, financially independent expat in Thailand.
But I can tell you, regardless of what the stock market is doing, that day-to-day routine of mine doesn’t change too much.
The stock market’s volatility doesn’t change what time I get up, where/when I eat lunch, my usual visit to my favorite coffee shop to write, the mid-afternoon gym session, or anything else in my life. I don’t somehow shower with colder water in the morning. My food doesn’t somehow taste different. The sun doesn’t shine any less brightly. The world continues to turn as it always does. Nothing skips a beat.
Again, it’s like what’s happening on Mars. There’s absolutely no effect whatsoever on what I do or how I do it.
Living Off Of Dividend Income Makes Stock Market Volatility Moot
This is the crux of it, folks.
The only reason I’m actually aware of stock market volatility at all is because I do log into my brokerage accounts every few days or so to tally up my dividend income. Plus, I get those aforementioned emails from worried readers. And I also check things a bit more often than I otherwise would because I still write so much content in the personal finance space. Barring the professional angle, I’d be almost totally oblivious to the stock market’s daily gyrations.
See, it’s that growing dividend income that is the lifeblood of my financial independence. And it’s unaffected by stock market volatility.
To wit, the US stock market last week experienced one of its worst weeks since the financial crisis.
What happened to my dividend income over this same exact week?
It went up!
Four companies I own a slice of – United Parcel Service Inc. (UPS); Union Pacific Corp. (UNP); Gilead Sciences Inc. (GILD); Archer Daniels Midland Co. (ADM) – announced increases in their respective dividends last week.
My ability to pay my bills via dividend income only improved last week.
To somehow make a mental leap from there to worrying about stock prices would be beyond silly.
And this is one of the biggest reasons one should be a dividend growth investor.
There are far more enjoyable things in life to do than watch the stock market – and financial independence unlocks plenty of time to enjoy those things.
If you’re able to combine financial independence with dividend growth investing, you have a recipe for a stress-free lifestyle that aligns your true passions with how you spend your time. You’re putting yourself in an advantageous position where you access one of the major benefits of investing (being free to live your life how you choose because you’re living off of investment income) without one of its biggest drawbacks (worrying about stock prices and volatility).
To unnecessarily place the burden of worry upon oneself, undoing one of the biggest advantages of being a dividend growth investor in the first place, would be extremely unwise.
Now, I want to make something very clear.
The points listed above do not mean I’m an unaware or uninterested investor.
That couldn’t be further from the truth.
I enthusiastically read multiple press releases/updates every single day (which is how I’m aware of those aforementioned dividend increases) from the companies I own a slice of.
Something going on with the 30,000-square-foot Starbucks Reserve Roastery in Shanghai for Starbucks Corp (SBUX)? I’m interested in that. I’m all over it.
McDonald’s Corp. (MCD) switching to fresh beef? Awesome. Let’s hear about it. Tell me more.
PepsiCo Inc. (PEP) is rolling out a new zero-calorie sparkling water product? Fantastic. I’m checking out the highlights.
But what stock prices for any of these companies – or any other companies, for that matter – are doing? I don’t think I could be less interested.
You want to be an owner? Want to be a boss? Want to be financially independent at a young age?
Then you shouldn’t worry about what stock prices are doing at all, other than to see short-term volatility as a long-term opportunity if/when the time comes to deploy your regular capital into high-quality dividend growth stocks as you march ever-closer to financial independence and making your dreams come true.
I never timed the market. Time in the market is a far better ally to the long-term investor than timing the market. I spent years of my life regularly deploying my excess capital into high-quality dividend growth stocks at good valuations, which is how I’ve arrived to this position in life.
That said, short-term volatility is a good friend to those regularly deploying capital, as cheaper prices/valuations should be welcomed by any long-term investor. But if you do insist on timing the market in any capacity, Warren Buffett said it best:
And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.
Otherwise, Buffett put it even better when asked about what he thought of the idea of people watching stock market fluctuations:
I would tell them don’t watch the market closely. If they’re trying to buy and sell stocks, and worry when they go down a little bit … and think maybe they should sell them when the go up, they’re not going to have very good results. The money is made in investments by investing and by owning good companies for long periods of time. That’s what people should do with stocks. All they are are little pieces of businesses, and the businesses are generally pretty darn good.
Couldn’t have said it better myself.
Full disclosure: I’m long all aforementioned stocks.
Did you find yourself worrying about or paying attention to recent stock market volatility? Why or why not?
Thanks for reading.
Image courtesy of: lekkyjustdoit at FreeDigitalPhotos.net.
P.S. If you’re interested in becoming financially independent, at which point stock market volatility should become a non-existent concern, please check out the list of invaluable resources I’ve compiled that personally helped me become financially independent in my early 30s!