Two Income Strategies to Protect and Grow Wealth in the Market


No matter what 2022 reveals, now is always the time to make smart long-term investments to build wealth and protect what you have.

Having a strategy and a disciplined approach – with an eye to the long term – is key to enabling the power of compounding. Investing in high-quality dividend-paying stocks and ETFs can help you achieve strong long-term stock market performance and protect your investments.

Dividend investment

One way to receive frequent cash payments through stock investing is through companies that pay regular dividends.

A dividend stock pays a cash or stock dividend to shareholders. Companies distribute a portion of their profits monthly or quarterly to shareholders, then invest the remaining profits in the business to propel growth.

Far too often with investing, people prefer drama and high-profile promotions to stocks that offer steady sales and growing dividend yields.

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A company that pays regular installments demonstrates fiscal discipline, which can take years. Historically, dividend-paying stocks are less risky and produce more income than other stocks.

Dividend-paying companies need stable cash flow, with enough earnings to meet obligations and debts while paying regular dividends to shareholders. That’s why high-quality stocks that pay dividends tend to hold up better than stocks that don’t pay dividends, even during market declines – they’re stable and come from highly profitable companies that have plenty of cash and long-term endurance.

Dividend shares:

  • Are attractive to individual income-oriented investors, as they offer the potential for share price appreciation and the opportunity to receive profits through cash payments (i.e. dividends) without selling shares.
  • Tend to be more stable, as stock prices go up and down every day.
  • Provide cash as current income – important for baby boomers who are increasingly retiring and need income to pay monthly bills and medical bills.
  • Provide quarterly cash income like regular checks. Use the money to pay utilities, rent or mortgage, grocery bills, etc. Dividend stocks with a higher yield (3+%, for example) provide more money to spend per month.

When you have a high-yielding, dividend-paying portfolio, you can generate enough cash flow to cover expenses without selling equity investments.

Selection of the most suitable ETFs

There are over 7,600 exchange-traded funds, representing around $7.7 trillion — good chances of finding ETFs that suit your needs.

It is important to choose a variety that covers all sectors and matches your investment prospects. If you’re optimistic about the US economy, a fund made up of a cross-section of US companies might be a good choice.

Discover these main ETFs:

SPDR S&P 500 ETF: The first and largest ETF, it tracks the S&P 500 Index and is typically comprised of the 500 largest publicly traded US companies.

Invesco QQQ ETF: Tracks the largest companies (based on market capitalization) listed on the NASDAQ exchange. Since the NASDAQ includes a relatively high percentage of technology companies, it’s a good way to diversify with computer, software, telecommunications, and biotechnology companies.

SPDR Dow Jones Industrial Average ETF: The Dow Jones Industrial Average is made up of 30 blue chip stocks – this tracks these companies.

iShares Core S&P 500 ETF: Similar to the “spider” ETF, this fund tracks the S&P 500.

SPDR S&P Mid-Cap 400 ETF: It tracks the S&P Mid-Cap 400, made up of mid-sized US companies.

iShares Russell 2000 ETF: The Russell 2000 is a popular benchmark for small- and mid-cap companies (market value $20-300 million). These companies rotate fairly regularly, but it’s a popular way to invest in smaller businesses.

iShares MSCI EAFE ETF: The Morgan Stanley Capital International and Europe, Australasia & Far East ETF tracks stocks of non-US companies in major global economies as a way to invest in foreign equities.

Vanguard Total Stock Market ETF: Tracks the Wilshire 5000, the broadest index for US stocks, including most US companies. A good way to invest in the American economy.

Consumer Staples Select Sector SPDR: Standard & Poors has established a variety of S&P 500 sector ETFs. This one tracks consumer services companies.

No matter your outlook, it makes sense to diversify. You can buy stocks in a broad index fund, an international fund, and a commodity fund to protect against economic downturns or rapid falls in commodity prices. Your strategy should be disciplined, risk aware and seek to add value in all market environments.

The key to wealth creation is to creatively maximize return while minimizing risk. For new investors, buying ETF stocks is a great way to diversify to reduce the risk of a specific stock. And investing in companies that pay dividends… well, pays dividends.

By Kevin Simpson, Founder and Chief Investment Officer at Capital Wealth Planning


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