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The Dangers of a "Participation Trophy" Economy

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The Dangers of a "Participation Trophy" Economy

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

You know the expression "When the going gets tough, the government hands out free money"?

No? Well, that should be the saying these days.

The government has gotten into the ugly habit of handing out money anytime things get a bit unpleasant.

When the Great Recession hit, the government sent out checks - including to people who didn't need them.

More recently, we got checks from the government when COVID-19 hit. In this case, it was initially a good idea, as the economy had suddenly been shut down, employers were no longer hiring and many needed the government money as a lifeline.

But the giveaway went on for way too long.

We all know people who decided to stay home, collect their government checks and watch Maury rather than get a job. (I mean, I wanted to find out who the baby daddy was too, but I had responsibilities to take care of.)

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Here's another example: In 2022, California Gov. Gavin Newsom wanted to send every Californian, regardless of their income level, two $400 debit cards to help offset the high price of gasoline...

And he also proposed giving away three months of free public transit.

The plan would have cost only $11 billion. (No wonder it got axed.)

Don't get me wrong - I'm all for encouraging the use of public transit. It lightens traffic on the roads and reduces gas consumption. But the idea of everyone receiving free money because gas prices were high reminds me of the participation trophies I had to give out to my daughter's soccer team.

It's like no one can handle being uncomfortable anymore.

I'm going to lose some friends here, but if high gas prices are squeezing you, maybe don't drive a gas-guzzling SUV. There are options out there that are more gas-efficient, and there's something to be said for personal responsibility.

The truth is these kinds of government actions are inflationary. You can't just keep giving people money without expecting inflation to take off.

But perhaps more importantly, these giveaways get people used to the idea that the government is always going to be there to bail them out when things get uncomfortable. That's not the government's job.

It's our responsibility to save and invest for a rainy day so that we're still able to meet our obligations when things get difficult.

One day, the government manna from heaven is going to stop. And Uncle Sam won't be there to bail us out when things get rough. We're going to have to fend for ourselves.

The best way I know of to prepare for a rainy day is not to wait for the government to hold out an umbrella for us and put its coat over every puddle so we don't get our dainty little feet wet.

It's to invest in Perpetual Dividend Raisers.

These are stable companies that raise their dividends every year and grow in value over the long term. The income they generate increases your buying power year after year.

If you're invested in a stock like Texas Instruments (Nasdaq: TXN) that grows its dividend by 10% or more each year, you'll always be keeping up with rising prices - even when inflation is hitting the hardest.

RTX (NYSE: RTX) is another company with a history of double-digit dividend raises.

And companies that boost their dividends by large amounts aren't just good for paying higher prices at the pump. They grow your nest egg as well.

In 2013, I added both of those stocks to the portfolios in The Oxford Income Letter, which include a lot of Perpetual Dividend Raisers.

Since then, RTX (formerly known as Raytheon) has returned more than 400%, versus the S&P 500's gain of 284% during the same period. And in October 2023, we closed out of Texas Instruments for a total return of 430%, which was double what you would've made from the S&P 500.

At some point, this participation trophy-style economic thinking will swing back the other way and we'll have to rely on ourselves rather than the government to get through hard times.

When that occurs, you'll be glad you invested in Perpetual Dividend Raisers. But you need to start today so you can harvest those rising dividends later on.

There's a Chinese proverb that says, "The best time to plant a tree was 20 years ago. The second-best time is now."

The same can be said for investing in Perpetual Dividend Raisers. Make sure you're invested in them now so they can provide you with income, safety and growth when you really need them.

Are you ready to get started with Perpetual Dividend Raisers right now?

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Good investing,

Marc

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