Why buy, hold and drawdown investing isn’t enough


“I only hold three to four ‘really good’ stocks. That’s it.”

That’s what my long distance cousin said to me earlier this year, during Chinese New Year. We were talking about investing during retirement years.

I believed what my cousin described to me is what many investors would do - “buy, hold and eventually draw down”. Accumulating your stock portfolio and then sell down around 4% of your stock portfolio each year. This allows you not to run out of money during your retirement. Sounds logical.

But here’s what I’ve observed

Over the last 15 years, the stock market has rewarded one type of investor - growth. Buy tech, buy momentum. Buy what is going up. And it made sense because the investing conditions made this strategy work - near-zero interest rates and massive central bank liquidity across the world. That’s why buying an index fund or an ETF like the S&P 500 made sense.

But today these conditions have changed. When valuations hit an all-time high, when the index today gets this concentrated...

That’s where investors get crushed.

For someone with a 25-year retirement ahead, waiting 5-7 years just to get back to breakeven can be a struggle.

I’ll explain.

For example, if my mom’s $500,000 stock portfolio drops 20% today, it becomes $400,000.She still needs to withdraw $20,000 for expenses. She’s forced to sell more shares in bad years. Now her portfolio is at $380,000.

When the market eventually recovers, her portfolio needs to grow at least 30% to go back to $500,000. In other words, with lesser shares you need an even bigger gain just to get back to her original value. She takes on more risk.

What I did instead

So when I built my mom's portfolio, I made sure this did not happen to her and that she continues to collect her income - even if the stock market goes down. She did not have to sell a single share. The way I did this was to build aa income portfolio that generates consistent dividend income.

Look, accumulating stocks over time is still one of the best things we can do for retirement. When the dividends cover her living expenses, she doesn't need to touch the capital. The shares stay intact. The compounding continues.

When Mr. Market was going through COVID-19 pandemic, through the Ukraine war in 2022, interest rate shock thereafter, and the tariff tantrum in 2025, I didn’t sell her shares. In fact, she continued to collect her dividends.

Just relying on a drawdown plan assumes our retirement will not have a bad market crash at the wrong time. During our working years, it’s easier to survive past a market crash because we have active income. Time is on our side to compound. In retirement, a market crash at the wrong time can permanently impair my mom’s portfolio since she doesn’t have an active income.

What you need is a passive income engine that gives you that huge advantage you can have in your retirement. This way, Mr Market’s mood doesn’t force your hand. You collect income - whether stocks go up, or stocks go down. Even better, if you build a dividend portfolio right, you don't have to choose between income and growth. You can have both.

What are your thoughts?

Sometimes, investing can be simple.

Willie Keng, CFA

Founder, dividendtitan.com

P.S. Like this issue? Click HERE to join other dividend investors reading my DT Compound Letter. I send my regular letters to your inbox.

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