Recently I have gotten more and more questions about investing, stocks and dividends. It's an amazing chain reaction when I'm able to see the people around me gain more interest in their financial futures and ask me questions about investing.
back in the beginning of 2016 I really started to explore alternative options to saving for my future that would allow me more freedom with my money and not lock it away till I hit a certain age to remove it. As I began my research I started to learn more truths and scary facts about 401K's that most people don't really tell you about. The biggest things that set me off to the 401K was that I knew that I wanted to retire at a younger age then 65 years old and I was really afraid of the undisclosed information on how the money that is in our 401K accounts is not truly ours but the governments till we pull it out.
Once I uncovered this truth I looked into cases where different countries had dipped into it's own citizens 401k's to fuel the operations of the country. I was very disturbed by the information I found and knew that I needed to reduce the percentage of my paycheck I was contributing to my 401k. At the time I was contributing a pretty hefty amount at the percent rate of 14% of my own money. With my company match of 6% I was effectively contributing 20% towards my long away retirement. I almost immediately reduced my paycheck contributions to the match percentage of 6% as I was very alarmed by the information I had discovered. I began to look at different ways I would be able to save my money but still receive a nice return on my equity.
after a month of research I had come upon a few different ideas on how I would save my money. I first looked into things like CD's, Bond's, high rate savings accounts and infinite banking. needless to say none of these things really had the answer I was looking for my investment vehicle. The one type of investment that is still really intriguing to me is infinite banking. I was very interested on the idea of making money on loans short of like a bank. I was turned off to the idea though as the possibility of defaulting loans and a lack of usability really turned me off towards the idea.
I still really don't know how I came across dividends. One day I was doing more research on ways to invest and save my money and I came across a website called Dividend Mantra. I really loved the website and read many pages which helped me see the success this one investor was having with dividends. Now, I had heard of dividends before but never really though anything special about them. Let me tell you though, I'm so thankful to have found about dividends when I did. I honestly can't think of any other investment that has all the positives that dividend investing contains. Every time I explain dividends to someone they are always just as intrigued as I was.
A lot of people are skeptical however when it comes to investing money and making easy guaranteed returns as most of the time these companies claiming these statements have turned out to be a scam or a twisted version of the truth. I don't blame others because I'm the same way when it comes to people claiming they can make the claims that dividends provide. I now have over $20,000 of my own hard earned cash invested into high quality dividend paying stocks. No one is paid to over see my account and I don't have to pay any account fees to anyone besides the flat rate fee to purchase and equity or eliminate one. I remember back in the day I had paid a 5% rate on my mutual fund investments and it ended up costing me over $400 to purchase in. Man was I naive.
I wanted to write an article detailing all the information I have learned about dividend investing in general and help answer the questions I'am most frequently asked about them. Hopefully I can always put some peoples fears at ease and also help explain the to good to be true nature of this investment strategy.
Now here is a short disclaimer before I get into the details! I would never consider myself a financial adviser because I would never help anyone out in order to benefit myself. I would definitely say that I have the aspects of a fiduciary but without handling others assets.
Answers to Common Questions
1. Are dividends a safe investment strategy?
Like almost all investment strategies risks are something that an investor must take on in order to make a decent return on their equity. A person could easily put their money into a high yield savings account and receive a decent 1% return rate or even a CD which could earn them upwards to 2% if they are lucky. In my opinion it is just silly to lock away money with out being able to touch it for 5-10 years to only receive a 2% return on their equity. Dividends In my opinion are a rather safe investment strategy if the trader is choosing high quality dividend growth companies that are going to continue to pump out dividends for years to come. I always pose this question to anyone struggling with understanding the safety of dividends. Is Johnson and Johnson going to go out of business next year? If one does their research into the financial health of this company and the revenue this companies takes in per quarter then anyone could easily answer no to my question.
By this time I usually see a light flip on in their eyes as they begin to understand this concept. All ten of the companies I'm currently invested into are strong growth oriented dividend stocks that are going to be around for years to come. If forever reason the certainty of the company carrying on was not certain, Investors would definitely know about it and I would simply eliminate my position and move on.
Investors must come to terms that the market is very volatile and sometimes investments take dips and sometimes they have nice jumps. The fluctuations in the market are very normal and one must not be turned off by the day to day ups and downs in the market. I have begun to set my eyes on the long term prospect of dividend investing and now look at the broader outcome of the investment. In general, the market moves upward over time and diversification is another great tool to use to ensure the safety of dividend investors capital.
2. How do I start dividend investing?
Their are numerous ways for someone to get into dividend investing. I can think of at least ten different brokers off the top of my head and each one has it's pros and cons. different brokers have all kinds of different tools and platforms that traders argue upon which is the best. I personally use Fidelity due to it's easy of use and intuitive platform. Some things that I really look for and enjoy in an online broker is layout of the website and ease of finding my way around the investing platform. Live data streaming is a must for me as long as execution of trade times. Different traders have different trade execution time frames and seconds count in order to receive the best entry price or exit price on my trade. A few other aspects I enjoy also is the ability to set up a DRIP (Hint, Its a link) account and the fees paid for each trade. Now, if I were to do it again I would really like to find a broker that has zero trading fees such as Robinhood. as a dividend investor it is annoying to see that trading fees I have paid year to date at the price of $168 This is almost half of the dividends I have received year to date and I would obviously rather have not spent this on fees. Nerveless I have enjoyed Fidelity and at the moment am not looking at switching brokers.
3. How long does it take to see returns?
This is a very vague question and is harder to answer. It obviously depends on the mix of companies the trader chooses to invest within and the dividend yield that the stocks boasts. I literally started receiving dividends the first month I started investing. I started at the perfect time though and was able to get in before the ex dividend dates. The amount wasn't crazy, but it was definitely something. I also had made some really good purchases and gained quite a bit of investment income in the first few months. Investment income really isn't worth anything until one chooses to sell the position but nonetheless it's nice to be up on a purchase no matter what the situation.
Benefits of Dividends
Dividends are a long term growth strategy but they definitely have changed my life and will continue to do so as my wealth continues to grow.The things I love to point out to people is that dividend paying growth companies will do whatever it takes to keep dividends flowing for investors. I have seen dividend cuts before but never to one of my holdings. most companies will do whatever it takes to
The good old saying it takes money to make money has never been truer though, I currently have over $20,000 invested in solid dividend companies that give me a combined yield of 4% which is very good. This amounts to approximately $800 in guaranteed annual dividends. All the companies I own are going to continue to be profitable and continue to pay out dividends as outlined by the payout history of the companies I hold.
to summarize the greatness of this, If I have $1,00,000. Invested into dividends stocks and I have a yield of 4% I could expect to receive $40,000 per year in dividend income. Now a lot of people would think that is not a lot of money to live off of. Some things to help put this into perspective though is that on long term dividend stocks traders only have to pay a tax rate of 15% or $6,000 of the dividend yield as outlined above. That leaves me with $34,000 per year. Now, assuming that my mortgage is paid off like it should be if I'm going to retire, I would have $2,800 to live off of per month. Depending on your life style this may not be enough for some. To me this is a lot of money to live month to month though. I don't even spend this much money right now month to month with a mortgage payment.
dividends don't eat away your nest egg in retirement. This is a big one for myself and many dividend investors. The 4% rule needs not apply to dividend investors! Dividends are paid out from the income the company generates so investors don't need to eat away at their own retirement savings account in order to live out their years in retirement! The rule of thumb for retires using a traditional 401k is that they need to withdraw approximately 4% of their nest egg every year in order to survive, This is not a fear for dividend investors and I will never need to sell a share in order to receive my cash dividend! Dividends are delivered into my brokerage account as cash and I can transfer them to a bank account right away! It does take a few days for the money to transfer but that is hardly a downside.
The last and final benefit I see to dividends is the ability to be able to have access to my funds without a penalty whenever I see fit. In a sense, this is my back up account or emergency fund. Now, I ideally never want to sell a share to pay for an expense but sometimes life happens and something could happen that would force my hand to dip into my fund. As stated, this is not an ideal situation but do you now what? I can do it at any time and have access to the Funds in less then 7 days. I don't really see a 7 day waiting time for funds to clear and transfer to my account as a bad thing as I really can't think of any situations that I would need immediate access to my funds. just having this option puts fears of not being to make a payment for something to rest.
The whole goal of this website was to keep track of my journey towards financial freedom and serve as a motivator as I continue my journey on this long road. If I can help others learn something on the way and also inspire others to start investing in dividends then that is also a major bonus! I wish I would have found out about dividends years ago and started even younger. I'm not complaining though and I'm very happy with where I'm at in my current age and I value the time I have to grow my account.
I know this was a long one but I hope I did a good job at explaining why I love dividends and explaining some basics questions I get all the time. Everyday I wake up excited for the next time I'm able to add more money into my account and it is a crazy thing to switch from I can't wait to acquire and purchase more useless things to, I can't wait to invest more for my future!
Either way, I'm looking forward to the years of dividend investing and blogging that are unfolding before my eyes and I can't wait to obviously hit my goal but I'm going to sit back and enjoy my journey! Hopefully I was able to answer a few questions and inspire anyone. please feel free to leave me a comment below if you have a question that I should answer and add to the list or even just leave me some encouraging words!
Image courtesy of Sira Anamwong at FreeDigitalPhotos.net