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What would you invest in 2020, growth stocks or dividend stocks?

It all depends on many things – your age, money available, goal or why are you investing, time horizon you want to invest, and so on.

If you are young and want to create a portfolio for your retirement, then I definitely vote for dividend stocks. Why?

If you want to invest for the next 20, 30, or 40 years and build a portfolio for your retirement, how would you cash out your investments once you retire?

If you invest in growth stocks, the only way to cash out is to sell some of your investments (4% rule).

If you invest in dividend stocks, you will be cashing out dividends only and not selling your assets.

Then what happens if a market goes into a bear market selloff or recession and you have to cash out?

If you create $1,000,000 worth portfolio then growth stocks will pay you (usually) nothing in dividends. Dividend stocks will pay you $150,000 annually in dividends (15% YOC after 25 years of dividend growth). If the stock market crashes 68% (like it did in 2008) than your portfolio will shrink to $320,000.

If you have to sell 4% of your portfolio to cash money for living, with growth stocks (now valued at $320,000) you will sell 0.04 and receive $12,800 instead of $40,000 (4% rule). Will you be able to live on $12,800 that year? Probably not. I suppose, you will have to go back to work. Or you will sell out $40,000 and hope, your even more shrank portfolio (now $280,000) recovers. And fast! If however the recession takes 3 years (like the one in 2008), you will be doomed. The second year, you take our $40k (down to $240,000) and third year another $40,000 (down to $200,000). And even if the market starts recovering at the same rate as 2009 to 2020 (399%) your account will be up to only $799,000 in 10 years (2019 – 2009) and that is if you do not take any money out of it for the next 10 years. And that is a very bleak outlook I personally do not like much. What can you do? Well, save even more than $1,000,000 account. Maybe $3 million account will do the trick. But, that means, you will have to be saving a lot, every year! For the next 25 years or more. Or?

Or, invest in dividend stocks. Because, even if the market slumps and crashes 68% like it did in 2008, and it will be $320,000 value only, it still will pay you $150,000 annual dividends. If you think it’s not true, go and check how the high quality dividend stocks behaved during 2007, 2008, and 2009 years. ALL of them not only paid their dividend, but also INCREASED the dividend. And those are the companies you want in your portfolio.

If you want some excitement and rapid growth, you may use, let’s say 20% of your capital and put it into growth technology stocks. The rest should go to dividend stocks.

2 responses to “What would you invest in 2020, growth stocks or dividend stocks?”

  1. Easy – Dividend stocks. However, not just any dividend stocks. Dividend stocks that have demonstrated their ability to grow their dividend through various economic cycles. I am going to continue focusing on quality, quality, quality going forward.

    Thanks for the read!


    • Martin says:

      I totally agree. However, during this crisis I have seen even good quality companies to cut their dividends. Sad. But there might be time when this happens…
      Thank you for taking time to comment!

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