If you had asked me how the stock market worked five years ago, I probably would have described a scene out of the movie, The Wolf of Wall Street. I always imagined a frenetic scene where traders are standing around in a pit, yelling and screaming at each other, yelling and screaming into two or three phones at a time. Why I thought they could carry a conversation with three different people at the same time, I’m not entirely sure. But I was in awe of these people who had mastered the art of serious multitasking in this magical place called Wall Street.
I never thought “investing” was something I could do because a) I didn’t know any stock brokers, b) I’ve never had thousands of dollars to throw into whatever stock was hot at the moment, c) I don’t really trust people that multitask. Seriously, something always falls off no matter how good you think you are.
It wasn’t until I started educating myself on saving, budgeting, and overall personal finance that I learned just how simple investing can be. Sure, there are so many different ways to invest your money; bonds, individual stocks, ETFs, index funds, real estate, private equity, etc. But that is the beauty in building wealth. There isn’t just ONE way or RIGHT way to do it. So it doesn’t necessarily matter how you do it; just that you do it.
I’ve decided to start off building wealth via individual stocks; specifically dividend investing. I know what you’re thinking but, no, dividends aren’t just for old people. For those seeking financial independence through passive monthly income, this strategy has a lot going for it. Dividend investing involves carefully investing in high quality businesses that are stable, mature, have a history of paying dividends and increases the dividends they do pay. Since these companies are stable, their stock prices tend to be less volatile than the general market. Because of these factors, dividend investing is an appealing way for younger investors to generate income over the long haul and a great way to set yourself up for financial independence.
However, I know that I’m not all numbers ALL the time; no amount of reading, studying, and meditation can make me completely remove the emotional side of investing. Let’s face it, parting with your money with the faith and trust that you’ll not only get the principle plus a little extra back is not easy.
Here are the three main reasons why I’ve decided dividend investing is the best strategy for me.
- “Patience is a virtue.” One that I wasn’t naturally blessed with.
I’m an Aries and, by nature, am really impatient. Delayed gratification isn’t something that comes naturally to humans; for me, forget about it. Once I make up my mind to do something, I want it done yesterday. So, you get the gist when I say patience is not exactly my strong suit.
With most investing strategies, it could take anywhere from five to ten years before you can see a real return your initial investment. And even then, you still have to sell your holdings before you can reap the benefits of the stock’s growth. However, with dividend investing, every month I would get a small percentage of the company profits- simply because I chose to become a shareholder. Even the most impatient person can’t be mad at that.
2. “I don’t like uncertainty. I don’t play poker. I don’t like bluffing.”
Couldn’t have said it any better, Joss Whedon. I’m not one for gambling either. I don’t believe in “luck”. And, while I do believe in God, I don’t believe in the idea of blind faith. I believe that every future reaction is the result of a past action.
So, you can see why it’s difficult for me to grasp at the idea of throwing money wildly into the wind because of a “hunch” or “feeling” that some company or industry sector will take off without any substantial proof. However, investing in companies that pay dividends are my way of ensuring that my actions (investing in companies that have a history of maintaining positive balance sheets and continually paying dividends) have a favorable reaction (continued growth and expansion, as well as, a large passive cash flow). There will always be an element of uncertainty because no one can predict the future. However, betting on companies that have an excellent business model and have a history of maintaining dividend payouts even when the overall stock market is down is a bet I’m willing to take.
3. “For a successful life, or successful business, measure what you want to improve.”
Working toward one massive goal is great but sometimes you need to set smaller goals to keep you on track. Sort of like checkpoints. Because I would like to gain financial independence in 10 years, I have already set yearly goals that will help push me to completing this goal. These yearly goals involve tracking my network and amount of dividends paid to me from my investments. Tracking how much of my current expenses the dividends could cover is one great way to, not only track my progress but to, also to keep me motivated to continue working towards my goal of complete financial independence.
Not every strategy is right for every person. You have to know yourself and understand what your goal is, how tolerant you are of risk, and how active of an investor you want to be. For me, investing in mature companies that pay dividends just makes sense.
Thanks for reading.