02 Oct More is Actually Better
More is Actually Better
Oct. 2, 2023
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Do you know what the sneaky secret is to becoming a pro tennis player?
A constant, dependable incoming stream of money is the main reason players make it to the Tour.
Becoming good enough to beat pros is hard. But it’s possible. I’ve seen it with my own eyes.
Being good enough, though, is not how you make it to Arthur Ashe Stadium. If you run out of money when you’re just starting out, there is no Billie Jean King Tennis Center in your future.
When you start, there are going to be several drawdowns/early round losses. If all your money was used up in a first round loss in Turkey, the future is over.
If you have a sponsor or wealthy parents or several hundred thousand dollars saved up–if you have a dependable income stream–you can survive a bad loss in Portugal.
Even more importantly, you can play with a peaceful mind.
The ability to not worry about how this tournament goes is the real secret to a pro career. And how do you stop worrying about today’s result? You stop worrying because you know you have 50 more tournaments coming up.
And how can you have 50 more tournaments scheduled? A constant inflow of money.
Trading is no different.
The pressure of having to have this trade on this system work right away is a death knell for traders. To see a drawdown when you have no money coming in is an absolute killer.
On the other hand, if you have constant money coming in, it’s easy to make it through a string of losses in your portfolio. It’s easy to let your system do its work.
Which is where dividends come in. Sure, we can buy Treasurys or rental properties, but both of those can be hassles–especially real estate. Dividends, though, can bring in money with no fuss.
That said, there is a HUGE debate on the internet about dividends. And people get pretty crazy.
On one hand, people say buy high-yield stocks and ETFs. Why? Because more money is more money! Makes sense.
But other people swear that high-yield is dangerous and dumb. The real key to wealth is dividend growth. Buy the Dividend Aristocrats (the companies that increase their dividends every year for decades) because a growing dividend creates the magic snowball effect and money rolls in.
So, which is really better?
First we have to be clear on what we want. We’re talking about money coming in each month or quarter. We’re not talking about what might compound over 40 years. We need money now and for the next several years.
Money in ten years doesn’t help me make it through my portfolio’s drawdown today.
If that’s the case, guess what? More yield is better.
Here’s a quick comparison between Dividend Aristocrat Proctor & Gamble, PG, and high-yield favorite QYLD. QYLD brings in 12% per year and pays monthly. PG brings in 2.58% per year and pays quarterly — but it grows its dividend every year!
Here’s how that turns out. From 2018-September 2023:
- QYLD brings in $54,210 in cold hard cash (on a $100k investment)
- PG brings in $22,820
If we actually need income, more yield is lot more money. Who knew?
But what about the TOTAL return? (I can hear the experts screaming.) What about the share price increase over time?
Well, that argument assumes something that all passive investors assume, and it’s an assumption that just ain’t true.
Here’s the comparison between PG and QYLD from 12/1/2014 to 5/1/2018. And this includes share price growth and dividend re-investment:
Over a multi-year period, the high-yielder completely destroys the Dividend Aristocrat. Getting money every month would have made an immediate difference to our trading and our life.
Waiting for an Aristocrat to finally pay off doesn’t help at all. In fact, it loses money.
If we’re looking for a constant income stream, high-yield is the way to go.
Of course, there are other things to consider. And we’ll do that in the upcoming Newsletters.
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.