Reason Number Five for Loving the Bear Market

I love the bear market because it reminds me that short-term thinking is not good for long-term investors.

According to CNBC, September 27, 2022, “The wealthy are bearing the largest losses, since they own an outsize share of stocks. The top 10% of Americans have lost over $8 trillion in stock market wealth this year, which marks a 22% decline in their stock wealth, according to the Federal Reserve. The top 1% has lost over $5 trillion in stock market wealth. The bottom 50% have lost about $70 billion in stock wealth.” LINK

Did you lose wealth in the last three years? As has already been said in a previous post, a bear market reduces the perceived value of most investments. Perception is not always reality, and the patient, long-term investor understands this key when viewing their investment account balances and their “losses.” You have not, in reality, suffered a true loss until you sell at a loss. Bear markets remind me that short-term thinking is upside down from long-term thinking.

Let Me Illustrate with ASX

I bought 100 shares of ASX on 07/21/21 at $8.70 per share, and the shares are now trading at $4.99 per share (this is a real asset in my ROTH IRA), so those 100 shares are now worth -42.64% what I paid for them. I paid $870 and they are worth $499. But I know that I don’t yet have a loss because I don’t let the bear dictate the true worth of my shares.

ASX has been, I believe, punished in the market because it operates in the semiconductor industry. To make matters worse, it is located in Taiwan, and China keeps beating the war drums to bring Taiwan back into Chinese control. The perceived value of ASX has dropped dramatically, but I really don’t realize a loss until I sell those shares.

Call me crazy, but as the bear has pummeled ASX, I have added shares ten times since July 2021. At this point I own 2,700 shares in my ROTH account. So the bear market has made it possible for me to buy more shares at lower prices. I like buying undervalued, quality, stable, growing, and financially healthy company stocks or ETFs that hold this type of investment.

A rule for Long-Term Investing: Buy undervalued, high-quality, stable, and healthy investments.

A WORD OF CAUTION: My total investment in ASX is only about 0.5% of our total investments. Do not buy this stock if it becomes a large percentage of your total retirement investment portfolio.

Dividends Come Into Focus

Another reason I like bear markets is that they help investors refocus on the benefit of dividends. If I asked you why you have retirement investments, I hope you would say that you want to be prepared for the days when your life looks like the description in Ecclesiastes 12:1-8. The picture is of an old man who no longer has the strength to work. His vision is fading, his hearing isn’t the best, and he needs assistance in walking. (That does not give old men or old women reasons to stop working in retirement.) When you cannot work to earn an income, investments will have value if they produce income.

Are you ready when your “house” is old? Investing can help you when you draw near to the end.

Therefore, I believe a bear market teaches a lesson about what type of investments a person should consider for retirement. The last three years in the stock market have not been good. Covid, the war in eastern Europe, the questionable actions of the Federal government, the steep rise in inflation, and the constant bickering in our political system have produced a lot of fear and uncertainty. And yet, because I am a dividend growth investor, our income is steadily rising.

There are four primary elements to our income stream. One is like an annuity, and it is called Social Security. That income pays the bills. The second stream in some part-time work that Cindie does at a wonderful care facility (Beehive Homes in Oregon, Wisconsin), another is the income I gain from selling covered call options, and the fourth is dividend income from our stocks and dividend growth ETFs like VYM, SCHD and DGRO.

Ranking the Income By Amount

The smallest of the four is the part-time Beehive income. Cindie really does that work more for ministry purposes than for the money it provides. The second source of ranking by dollar amount is Social Security. The third source is covered call options. The largest, by far, is dividend income.

The beauty of this approach is that it increases the opportunities we have for being generous. I have been doing an analysis of our giving for the last ten years. My conclusion: we should be even more generous during the balance of 2022 and then continue that increasing generosity in 2023.

What Dividends Look Like

The following illustrates the last three years of dividends by quarter. Because Q3 2022 just ended, I selected Q3 for 2020, 2021, and 2022. These were not good years for investors. However, dividend-paying companies did not go out of business and most of the increased their dividends.

2020 Q3 Dividend Income far-outpaced interest income. This was during Covid.
2021 Q3 Income from Dividend Growth Income did what it should – it grew.
2022 Q1 Q2 and Q3 have been ugly, but the dividend growth was beautiful.