It’s not wise to sell out of the market just because the market is near its eight-year high. That’s because the stock market tends to go higher over the long term.
However, there are a few things you can do to reduce your anxiety about the ever-higher market.
Shop for dividends at a value
Companies that grow their dividends and offer competitive yields of 3-5% are popular for good reason. The fact that they offer steady income and tend to increase their payouts over time make their share prices more resilient in a market crash.
A dividend-growth investing strategy becomes all the more powerful if you combine it with value investing — that is, if you aim to only buy these quality dividend-growth stocks when they’re priced at a margin of safety.
Right now, due to the generally pricey market, bargains in quality dividend stocks are rare. However, you can still find some at or near their fair valuations. A large-cap, quality, dividend-growth stock that’s priced at a reasonable valuation is Enbridge Inc. (TSX:ENB)(NYSE:ENB).
The largest energy infrastructure company in North America has a 21-consecutive-year track record of dividend growth. It offers a competitive yield of 4.2% and aims to hike it by 10-12% through 2024 with support from its growing available cash flow from operations.
It’s hard to beat Enbridge’s growth prospects and stable, growing dividend in today’s market.
Hold more cash
Holding more cash may seem contradictory to the previous tip. However, the idea is that if you don’t find quality dividend stocks that are priced at a large enough margin of safety, you can simply choose to hold off on your purchases.
In doing so, you can build a larger position of cash from your job’s income and dividend income. Both give you more buying power.
In the event of a market crash, holding a big pile of cash can soften the blow to your portfolio and give you the dry powder to buy quality stocks on the cheap.
The more anxious you are about the market, the more cash you hold. Some investors even have as much as 20% of their portfolio in cash.
Think with a long-term-investing mindset
The longer your investment horizon, the less you should worry about the day-to-day, month-to-month, and year-to-year gyrations of the market.
Even the biggest market crash will look like a blip when you look at it in hindsight five, 10, or, 20 years down the road.
