Get Started in Dividend Investing

I happened across a short, yet interesting video about dividend investing:

One of the consequences of confusing ‘investing’ with ‘trading’ involves assumptions about how much money the buyer and seller of stocks will need to accomplish their goals.  Getting reliable results with trading – barring the advent of freakishly good luck – requires thousands of dollars.  (Yes, yes, I know – there are a number of stories about the guy who was sleeping on park benches suddenly striking it rich through aggressive trading, but as I said: barring freakishly good luck, which is how someone like that could have prospered, assuming he isn’t just lying to you).

Investing, on the other hand, can be done with almost any amount of money.  Simply setting aside a handful of dollars each month for INVESTMENT purposes, can be enough to amass a remarkable amount of money when compounding gains over time.

Generally, I appreciate how our two video hosts attempt to demonstrate this reality.  Their example of making fairly tame contributions for a period of 5 years (thinking of a teenager, from the time they are 13 to 18 years old), then allowing the market’s historical gains (including re-investment of dividends) work its magic until that same person is 65 years old and able to retire with more than $1,000,000 is apt.  However, it is critical to remember that the 11% historical gains being cited will come through a number of ups and downs – a strong sense of discipline is critical for this sort of exercise to yield real fruit.

Since these guys want you to visit their site, www.dividend.com, it is in no way surprising that their example includes dividend returns.  And when it comes to investing, there is really no way for someone with limited means to really be an ‘investor’ (see “Make Your Own Trading Plan” to get a handle on why that is), and using dividends to consistently increase your market holdings for ‘free’ is one of the most reliable paths to building a substantial portfolio.  On top of that, making new purchases on a regular schedule automatically puts you in a dollar cost averaging model of trading – it’s not sexy, but it is reasonably safe.  Again, while these fellows don’t specifically identify what they are advocating as such, they are clearly laying out a program which fits that model.

I also liked their talk track near the end, when they advise that “some weeds will grow in any garden”.  Avoiding the still way too common ‘buy and hold’ foolishness, they advise viewers to keep an eye on the performance of their various holdings.  I’m not as excited about some of the fundamental items they discuss as they are, but so long as you have SOME kind of metric to warn you that it’s time to liquidate a particular stock, you can keep out of too much trouble by sitting on some garbage for an extended time.

I am in no way affiliated with dividend.com, but given their level headed approach to investing, it appears to me that the timorous trader could do much worse than rely on the site’s material for making good investment grade decisions.

Stay timid!