Dividends4Life: Buying The Dips: 20 Years Of Purchasing Dividend Growth Stocks When They Are On Sale

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The strategy of only buying stocks when the market has fallen 20% or more from its all-time high does not look very appealing. It harmed total return both for the SPY and the DCS portfolio. The only good thing that can be said about this strategy is that it led to less severe draw-downs. One factor that probably influenced the total return is that the BTD portfolio did not buy any shares until 2001. For over 6 years it only accumulated the contributions. You might think that 1995 was a particularly unfavorable starting point for the strategy, and it certainly looks like that. So I have taken a look at the longer time frame to find out when the strategy would have bought stocks previously to 1995. To do this I had to use the S&P 500 index itself since SPYs inception was in 1993.

No one knows what the future will bring. Maybe the DCS BTD portfolio will catch up with the plain DCS portfolio at some point. When the market falls more than 20% again the portfolio will buy a sizeable chunk of cheap stocks and bring income up. But the big question is when will that happen and will it be enough to regain all that lost income and total return? I still believe time in the market will beat trying to time the market. The results of this test seems to support that view. Waiting for 20% market corrections to buy dividend growth stocks will harm total return and reduce your income stream.

Source: Seeking Alpha

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