Posted September 25, 2023
By Zach Scheidt
Urgent: 3 Reasons You Need Income Plays Now!
Here's one of my favorite quotes from Thomas Edison:
"Opportunity is missed by most people because it is dressed in overalls and looks like work."
I'm sure you've seen this in many areas of your life from your career to hobbies or even relationships.
Things that are hard to do (or simply uncomfortable) often turn out to be the best decisions you could possibly make.
The same is true for investing — and income investing in particular.
That's because when the stock market pulls back like we've seen over the past several weeks, it's hard to step up to the plate and invest.
After all, if stocks are trading lower, aren't you likely to lose more of your hard-earned retirement savings?
With that in mind, I want to look at income investing so you can see why it makes sense to buy more of these plays in this challenging market.
And I’ll give you three reasons why now is the perfect time to add income plays to your retirement account.
#1: Income Investments Provide Stability
A few years ago, I had the idea of buying a fast food franchise or another similarly established small business.
At the time, I was interested in partnering with my son so that I could teach him about business and give him some real-world experience managing a company.
While we didn't wind up buying a business, the process was great for thinking about what we would be willing to pay based on how much profit a company could generate.
It's a lot easier to determine a fair price for a business that’s already profitable, especially if that business can pay its owners cash every quarter.
On the other hand, a business concept that has yet to be proven can be much harder to price.
That's because you don't know what you're buying or if you’ll ever profit from the business in the future.
The same concept applies to stocks, especially in today’s market!
Many tech companies are expected to generate a profit years from now. And if all goes well, investors will make a nice return.
But these companies carry a lot more risk, especially when interest rates are exceptionally high, inflation is still out of control, and the chance of a recession looms on the horizon.
Meanwhile, there are a handful of dividend stocks that simply churn out income quarter after quarter — in good times and bad.
These stocks are great investments for your retirement account because they don't fluctuate nearly as much as some of the more popular tech stocks.
Owning these steady dividend stocks can help you sleep at night knowing that your retirement won't fluctuate too much, even if the broad market pulls back.
#2: Income Plays Give You Options
Another reason I like income plays in today's market is because of the decisions you can make when cash payments hit your account.
You may have heard me talk previously about using a dividend reinvestment program (or DRIP).
This type of program automatically uses the cash from your dividend payments to buy new shares of stock.
It's my number one suggestion for most dividend stock investors.
But in a stock market pullback like the one we're in right now, you can use the cash you receive from dividend payments in other ways too.
For example, if you've got your eye on a particular stock that’s trading lower and want to make a long-term investment, you can use your dividend payments to buy shares at a discount.
Buying these stocks during a pullback gives you more shares for the amount of money that you invest.
And since you're using cash from your dividend payments, you don't have to sell any of your other positions to make the purchase.
You can use income from dividends in plenty of other ways too, like buying precious metals, investing in a business, or covering your day-to-day expenses.
The point is, that dividend stocks generate extra cash flow, which you can then use wisely depending on your personal needs.
#3: Get More Income for Your Investment
While dividend stocks tend to hold their value better than many other types of stocks, we still have to weather the normal ebbs and flows of markets.
That means sometimes the market price for dividend stocks will pull back. That's just part of the way investing works.
But the beauty of these ebbs and flows is that when dividend stocks pull back, the companies still pay the same dividends every quarter.
Only now, you can buy more shares with the same amount of money, which means you get more income for every dollar invested.
This is one of the reasons why I always recommend keeping some extra cash on hand in your retirement account.
When the very best dividend stocks pull back, you can use that extra cash to buy more shares, setting yourself up for more income every time these companies send out another payment.
Do the Hard Thing to Maximize Your Profits
Here's another one of my favorite quotes, this one often attributed to Nathan Rothschild, a famed banker, businessman, and financier:
"Buy to the sound of cannons, and sell to the sound of trumpets."
This gets back to the idea of doing the hard thing even when it's not comfortable.
When quality stocks pull back, most investors get frightened and sell their positions. But wise investors know that pullbacks are buying opportunities.
And when everyone else wants to buy, that's often the right time to sell and lock in profits.
I've still got some concerns when it comes to this market, especially for the high-priced tech stocks that don't generate income.
But for our reliable dividend stocks, this is a great time to put your capital to work, buying more shares at discount prices, and enjoying the benefits that come from our income plays.