The Bear Claws My Dividend Growth Portfolio - Will I Cut And Run?

A few critics of dividend growth investing enjoy chiding DGI's with remarks about how we do not know how we will react when a correction or bear market hits. They state that we will cut and run when the going gets tough. We will sell at the worst possible time, locking in losses through sheer panic. They have a point, in the sense that nobody knows the future. In fact, they make an excellent point about knowing your tolerance for price volatility, also known as "risk" in Modern Portfolio Theory. After all, some of us have never lived through a market crash with a dividend growth portfolio.

Ironically, the critics' suggestion is that we should not own so many stocks in the first place. We should mute our portfolios' volatility by adding bonds and cash to the mix. That way we won't panic when The Big One hits. Do you see the irony? The prescription is that, to guard against deciding to sell stocks in the future when the bear market hits, we should re-allocate assets now to create a portfolio that has a lower percentage in stocks. We should do this even if the new asset allocation does not meet our goals as well as the stocks that we already own. Doesn't that make it into kind of a pre-emptive cut and run? Either way, you get out of stocks.

Source: Seeking Alpha

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