You might wonder, does dividend investing help protect me on the downside versus owning a slice of the general stock market? The Covid-19 pandemic brought a bear market that shows us. A bear market means a drop 20% or more in price. In the chart below, notice how the S&P 500 fund and three popular dividend funds performed in the first three months of 2020. Spoiler alert, the S&P 500 performed better than the popular dividend funds:
Why did this happen? Stock prices tend to move in tandem with business fundamentals. Several non-dividend or low-dividend stocks during the bear-market actually improved their fundamentals and therefore their stocks performed better. Companies like Amazon, Netflix, and Facebook saw an increase in customer usage and sales. These stocks don’t pay dividends and their inclusion in the S&P 500 helped ensure it outperformed many popular dividend companies and funds.
Want to learn more about benefits of the Income on Demand strategy including protecting your principal during a bear market?
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Jonathan Bird, CFP®
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