The Most Dangerous Number in Dividend Investing
October 9, 2020
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This Common Dividend Investing Mistake Can Cost You Thousands
When it comes to dividend investing, we can be reminded of important lessons in the weirdest of ways.
The other day, a friend of mine sent me a story about a young woman with a huge TikTok following in full panic about the social media site’s looming shutdown.
This individual had accumulated somewhere in the neighborhood of 150,000 fans by posting 15-second dance videos. And earning that type of influencer status brought with it a long line of sponsorships and product placement deals. In fact, these partnerships turned out to be so lucrative that she dropped out of college to pursue her social media career full time.
But this TikTok influencer’s career in posting dance clips and lip-syncing pop songs appears to be in jeopardy. President Donald Trump has vowed to ban the Chinese social media platform, calling the company a threat to national security. His administration has even gone so far as to ban app downloads in popular stores like Apple and Google unless the TikTok site is sold to an American company.
Trump’s threat to shut down the social media site has thrown the careers of thousands of Gen-Z TikTok stars into limbo. And, not surprisingly, many fear that posting memes, basketball trick shots, and “booty shake” videos doesn’t represent transferable skills to future employers.
So why am I bringing this up?
For me, what’s happening to this young TikTok star and the many others like her serves as a lesson in one of the most important rules of business: the most dangerous thing in your enterprise or your dividend investing strategy is the number “one.”
Anytime this figure pops up, you have to fix it immediately: one product, one customer, one source of traffic, one marketing technique.
“One” leaves you vulnerable. “One” leaves you exposed. If any problem pops up and knocks out your “one,” you’re in for a world of pain.
Marketing guru Dan Kennedy has warned about this problem for years. That’s why he recommends that business owners build a collection of different methods to reach customers: search, social media, paid ads, direct mail, etc.
If our friends on TikTok had followed that advice and diversified their presence beyond one website, they’d be less exposed today.
And I see people making the same mistake when it comes to investing.
Do you own mostly U.S. stocks? What happens if a left-wing government wins an election and wages war on corporate America?
Have you gone all in on tech stocks? What happens if the trend on Wall Street changes and traders take their investment dollars elsewhere?
Do you keep a large piece of your nest egg in shares of your employer? What happens if your industry’s prospects turn south?
Do you keep most of your retirement savings in fixed-income securities? What happens if interest rates spike? What if inflation goes through the roof?
Do you keep most of your accounts with one bank? What happens if that institution goes belly up?
Nothing is perfectly safe. Not bonds. Not tech stocks. Not bank accounts. Not even entire countries.
When the number “one” pops up in your finances or investments, the clock has started ticking down. It’s only a matter of time until reality takes a two-by-four to your portfolio.
The solution, of course, is to banish this number from your dividend investing strategy. Diversify. That way, if one part of your portfolio takes a hit, another part rallies to pick up the slack.
