Most investors seek to protect their assets as a strategy to recession-proof their income by going heavy on cash and bonds - reducing the stocks in their portfolios to attempt to mitigate large volatile market drops during the volatility that occurs during a recession. But doing this could result in loss of opportunity, by capturing losses and avoiding huge market gains in the aftermath. In addition, dividend stocks tend to outperform the market in general while dividend income keeps pouring in like clockwork.
In this video "Recession-Proof Dividend Income | How To Prepare For A Recession 2021 // 10X Academy", I discuss the effects of a recession on dividend stocks, and how they perform during those periods (as well as possible future recessions coming in 2021 and beyond). As well as the different strategies and techniques the wealthy use to build wealth over time using dividend income. By following these easy steps, you can make your portfolio recession-proof, and substantially increase your wealth during these periods of uncertainty.
There are three key ways that investors can go about "recession proofing" their portfolios. The first is to invest in stocks that have historically generated lower than average volatility but superior total returns compared to the broader market. High-yielding dividend growth stocks have historically proven to be one of the best performing asset classes.
For example, during the 2008-2009 recession, the S&P 500 dropped significantly, while the S&P 500 trailing 12-month dividends dropped a small amount in 2009, but soon recovered and continued on its dividend growth path in subsequent years. Dividend income-producing companies keep paying dividends like clockwork, year in and year out. Historically speaking, on average dividend growth for the S&P 500 far outpaced S&P 500 returns (with an average of 34% loss in return on investment, while dividends only dropped 0.5%). Dividend Growth companies continue growing their dividends, even during recessions and bear markets!
The second way to recession-proof your stock portfolio is to focus on dividend growth stocks, such as the Dividend Aristocrats, which are S&P 500 companies that have increased their dividends for at least 25 consecutive years and thus have demonstrated their ability to maintain stable business models, strong balance sheets, and conservative corporate cultures. Due to their resilient qualities, the aristocrats actually managed to generate positive returns during the 2000-2002 bear market, and fell just 22% in 2008, compared to a 37% decline in the S&P 500.
The third way to recession-proof your portfolio is to consider shifting your stock portfolio towards defensive sectors. Defensive sectors are those sectors whose business models are the least affected by a recession historically because they provide essential goods and services that consumers continue to buy even during an economic downturn. During these times, consumer staples, healthcare, utilities, and telecoms have been the most recession-proof sectors. Their sales are least affected by the state of the economy since they sell essential products and services such as food, electricity, telephone and internet services, as well as medicine. A well-diversified portfolio, spanning across all of these defensive sectors, while focusing in on Dividend Aristocrats, provides the best recipe for recession-proofing your portfolio.
Investing in Dividend Income producing assets can be the smartest and safest investment for those looking to creating wealth over time. By employing the recession-proof strategies mentioned in this video, and with safe and smart investing techniques discussed in other 10X Academy videos (such as Value Investing, Dollar Cost Averaging, and Dividend Reinvestment and Diversification), you can create a low risk Dividend Income flow that will grow over time and continue to pay income continuously.
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⭐ Resources for Recession-Proof Dividend Investing ⭐
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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research prior to investing in any asset. I am merely sharing my opinion, with no guarantee of gains or losses on investments.
#recession
#dividends
#2021
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