2022 will be a crazy year for the stock market. Inflation is beyond hot, and the Federal Reserve is pursuing raising interest rates. All of these scenarios will lead to extreme stock market volatility.
I know that we love to see our stocks always in the green and increase in value—it’s human nature. However, let’s look at the benefits of seeing our stocks in the red.
More Money, More Problems. The major positive impact of investing in a downturn is buying stocks on sale. Sure, you can focus on growth stocks like Nvidia and ZOOM, but I have a different approach.
The Core Values of Passive Income
I focus on dividend-paying stocks. I want to grab the highest quality dividends at the highest possible yield. When the stock market is down, or cash flow is up!
How to find high yield opportunities. Ideally, you would always dollar-cost average into your blue-chip stocks and income investments.
When prices are down, that means yields are up. Let’s look at an example. Let’s say company XYZ costs $40 and pays $4/annual dividend. That gives it a dividend yield of 10% (4/40).
If the price of XYZ decreases to $30 and the dividend stays at $4, then the yield is now 13% (4/30). You just added much cash flow for less money—what a steal!
Strategy. You can’t just go out there and buy everything on sale; you have to have a game plan. Ideally, you want to lay the groundwork for the program well before the market crashes.
You lay the groundwork by reading books, following the stock market, and, most importantly, tracking your stocks. I like to purchase a small number of future positions to follow along. I build trust and read articles about what’s happening.
Passive Income for the Average Person
Then, if the market crashes, and I still have the same conviction, I load up at discount prices. Let’s look at an example.
Closed-End Funds. I love my closed-end funds because they give me pure income. However, they can sometimes trade at a premium to NAV. The fund manager PIMCO has many CEFs that trade at a premium to NAV because they are the best in the business.
So while they trade at a premium, I may buy a few shares of one of their best CEFs, the Income Opputinuty Fund (PTY). I may buy 5-10 shares so I can follow along. To me, it’s easier to follow something that is in my portfolio. However, you can add it to your watch list if you’d like.
Then, as the market sentiment shifts towards high-yield products, leverage, or debt instruments, I can see my CEFs drop in value. I also see my yield increase.
At these low points, I spend most of my current income to buy more income. While others are panic selling, I am acquiring more revenue for my cash flow retirement. I love it!
The investor mindset. To be successful in the stock market over long periods, you have to build the mindset of an investor.
Inflation vs. Crypto
First, what are your overall goals? Do you want to build a certain income level or a large amount of money? This is the Net Worth vs. Passive Income debate.
Second, can you stay the distance? Can you invest in something, knowing you may be in the red for a year or two? Can you look at the income first and price second? Most people can’t.
Lastly, can you stay positive throughout a downturn? Is seeing red going to make you sad all day long?
Ways to mitigate fear. The best way to alleviate anxiety is to diversify your passive income. I use my books and websites to reduce over-dependence on the stock market.
The passive income (royalties) from my books, affiliate marketing, and website help me focus on something outside the stock market. You can also invest in crypto, real estate, or build a business.
Stocks vs. Bonds: Is 60/40 Still Effective?
Dividends. Receiving my allotment of dividends keeps me going. I love getting my huge AT&T (T) dividends directly to my dividend debit card. I rarely need to look at my total account value; I focus on my annual dividend payments.
Learned traits. But, you have to learn these traits of patience and resilience. You can learn by reading books like “Intelligent Investor” and “Infinity Investing,” which will prepare you for the mindset you need to succeed.
Go deeper into your companies and closed-end funds. Understand what they invest in and what types of rate environments propel them to overperformance. For example, bank stocks usually excel during high-interest environments.
The higher the interest rates, the more banks can charge for loans, mortgages, and credit cards. So when rates are low, you may want to invest in bank stocks (and wait for higher rates). These little tidbits of information can allow you to achieve your investing goals.
How Would You Spend $5,000?
What are your goals? Are you investing or gambling? Do you want to be rich in 20 months or 20 years? Are you investing for capital gains or dividends?
Ask yourself these questions early and often to keep you on the right track. People will feed you all types of advice, but you can prevent the noise from interrupting your mission if you know your deepest goals.
Conclusion. I wanted to give you motivation for the upcoming year. I am 100% focused on building my monthly dividend income to over $2,000/month.
Last month, we received $900 in dividends. So, now we have 12 months to double that amount. This is my New Year’s Passive Income Resolution.
Don’t let the market’s volatility get you down. Understand your goals and achieve them. When (if) the market recovers, you will be in a much better position than when the downturn started. Think long-term and achieve success!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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