I have been entrusted with my family's finances. It is not a task that I take lightly since a mistake on my part could leave us in the street. OK, that's hyperbole, but it is the weight that I feel, and bear markets don't make the weight any lighter. However, I have a playbook that I've lived by for years, and market sell-offs are actually a great time for me to keep building my passive income stream. Here's how I make downturns work for me.

Safety first

I take my job as ensuring that my family has the financial wherewithal to handle financial adversity in relative stride. To that end, I have a laddered Certificate of Deposit (CD) portfolio with roughly six months' worth of living expenses in it. One of the six CDs I own matures every two months and automatically rolls over if I don't stop that process from happening. Essentially, I've always got access to some cash if I really need it, which makes buying stocks less stressful. The key is that this vital safety net is on auto-pilot. I thought about it once, setting it up, and now I never have to think about it again. I just know it's there. 

"Keep it simple" is a vital mantra for me because I'm just not capable of juggling too many things at one time. I share this because this same logic is important for my investment approach, as well.

Focus on success

One of the suggestions you'll find in Benjamin Graham's iconic book The Intelligent Investor is to focus on companies with long histories of success. A quick way to find such companies is to look at names with long histories of annual dividend increases. Dividend Achievers (10+ years of dividend increases), Dividend Aristocrats (25+ years), and Dividend Kings (50+ years) are all great starting points. From there, you need to dig in a bit to find companies that are well run with modest leverage. Once you have a diversified list of names you like, don't do anything. Just wait.

The market goes up and, as we've seen in 2022, down. Wait for the stocks you like to come to you. I don't have a set buy point, but I generally only make an addition when the dividend yield of a company I like is trading at the high end of its historical yield range. It suggests that the price is at least cheap relative to historical norms. 

During the COVID-19 pandemic bear market, I bought real estate investment trust (REIT) Federal Realty (FRT -1.69%), which has an over 50-year-long streak of annual dividend hikes under its belt (it's the longest streak in the REIT space). This REIT owns a small retail portfolio that focuses on wealthy regions with sizable populations. Development and redevelopment are key company skills. Retail was deeply out of favor during the pandemic, but this company has proven many times over that it can handle adversity and keep rewarding dividend investors like me.

During this year's downturn, meanwhile, I added Texas Instruments (TXN 0.01%) and Medtronic (MDT 0.12%). Both are higher-dividend growth names with long histories of annual dividend hikes that had unique issues, but it took a bear to push them down to attractive levels finally. That said, investments pop up all the time, so I also added Kellogg (K -0.04%) in between those two bear markets when investors were downbeat on the iconic food stock because of company-specific problems, including a fire at a production facility and a strike. Kellogg's dividend hasn't increased annually but has trended regularly higher over time. Notably, Kellogg is actually up 15% or so this year as its production problems have abated.

Mindless adherence to a plan

Here's the next big step: I set all of those new purchases to dividend reinvest, just like virtually all of my stock holdings (and, basically, like my CD safety net). It's the ultimate keep-it-simple move for me. Based on my approach, I know I own companies that place returning value to shareholders high on the priority list. I've selected the dividend names I think are long-term winners, so I know I have great companies in my diversified portfolio. And I've set them on autopilot, leaving me to watch the quarterly dividend checks transform into additional shares of great companies. 

During bear markets, I actually find it comforting to see that I'm adding even more to a list of stocks that I own. Remember, however, that these are dividend stocks, so every share I add actually increases the passive income I generate. It's a slow process, but my dividend income has headed steadily higher for years without me having to do much of anything. Simple is good; autopilot is even better. When I retire, I plan to start collecting those dividend checks to supplement my Social Security payments.

Slow and steady

I'd be lying if I said I didn't pay close attention to my portfolio. I constantly monitor the news on my 20 or so stocks and listen to most of the earnings conference calls. If something fundamental changes, I'll rethink my commitment to a stock. But what I don't do is fret constantly about the price of my holdings going up and down in the always volatile stock market. I've basically worked that out of my process by focusing on dividends, dividend yield, dividend reinvestment, and my steadily growing stream of passive income. In my investing world, stock market sell-offs are just another opportunity to invest and reinvest in great dividend stocks.