15 things I wish I had known before I began investing in dividends.
The first thing I wish I had known better when I was younger is that you should start investing as soon as you can. I started investing seriously for my future when I was 45, but if I could go back in time, I would start when I was 16 and working at Radio Shack for the first time. I would go back and put most of the money I made from that job and the other jobs I had when I was in my teens and early 20s into my account. Start earning money from dividends as soon as you can. The younger you are when you start, the more time you have to let your dividend snowball grow and increase. This means you can reach Financial Freedom and live off your dividend income, which is the dream, that much faster.
The second thing I wish I had known more about was how important it is to invest regularly. I didn't really get it when I first started. I might have been putting in $25 a month. From there, I might skip a month. The following month, put away another $25. How much and how often I put money into my investments was all over the place. Unless you come into a lot of money, the only way to build a good dividend portfolio is to put money in it regularly. Now, it's so easy that you can set up payments into your brokerage account to happen automatically. So, most of the hard work has already been done. Some brokerages, like the one I use, Robinhood, will put those funds in your account without you having to do anything.
Diversifying my portfolio is the third thing I wish I knew more about. It's true that you shouldn't put all your eggs in one basket, especially at first. On the other hand, I don't think you need 50 stocks in your portfolio right away in order to spread it. I did this, and I ended up selling a lot of those stocks because I realized I didn't know what this company did. I just didn't know enough to understand that they probably weren't the best investments to begin with. I think that putting most of your money in an ETF like SCHD is a good middle ground and a good place to start for new buyers. you get that diversity, and then you choose a small number of stocks to build on.
Go With The Familiar
The fourth thing I wish I had known is that it's best to spend in what you know, especially if you're just starting out. When you first start out, you don't know much about how to read financial records or find companies with good prices. you have to make do with what you have. For example, if you get coffee and egg bites every morning at the Starbucks drive-through, you could buy stock in Starbucks. Buy Coca-Cola stock if you drink Diet Coke like it's going out of style, like we do at my house. If you spend your weekends doing home improvement jobs, you might want to invest in something like Home Depot or Lowe's. If you pay your Duke Energy bill online, you might want to think about buying some of their stock. All of these companies are good, and the fact that you know them as a customer can help you figure out what their competitive edge might be as an investment. Plus, investing is fun, and I think it's more fun to invest in companies you use, especially when you are just starting out and don't have much else to go on. Having said that, I think the best thing about investing in dividends is that anyone can do it. I didn't know much about this because I didn't go to school to study finance, but now that I love investing so much, I think it would have been a good idea for me to have.
The next one is hard, and it's to stay on track. The market goes up and down all the time. If you want to be a long-term dividend investor, you will go through all of these things, but it's so important to stay focused no matter which way stock prices are going. Don't change your plan and keep adding to your assets. keep buying stocks. keep reinvesting dividends. Keep putting that money away. If you keep doing that for a long time, your consistency and focus will pay off in a big way.
Be ready for instability is the sixth tip, which kind of ties in with the last one. As I just said, the market goes up and down all the time. Sometimes it can make you feel sick to your stomach. But these sudden and quick changes in the market are just part of doing business, and like anything else, the more you see it, the less scary it gets. I'm telling you; you'll get tough.
All right, number seven is to set goals that are reasonable. Especially when it comes to dealing in dividends, this is not a way to get rich quickly. which, from what I've seen, is what most people want. I don't blame them, because dividend trading is one of those things that starts out really slow but gets better over time. If you spend in this way, don't expect to be able to quit your job right away. This is probably something you'll be doing for the next 10, 15, 20, 30, or more years. Like I said, if you stay on track, you can make a lot of progress in a few years, and it only gets better with time.
Number eight reinvest your income. This one is pretty common among investors, which is good, but I don't think I really knew how it worked when I first started buying. Reinvesting dividends can make a big difference. For example, if you put $10,000 into Coca-Cola in 2003 and kept reinvesting the dividends, that $10,000 would be worth about $48,000 today. If you didn't keep reinvesting the dividends, that same $10,000 would only be worth about $27,000, which is a big difference.
Pay attention to quality is number nine. It's easy to get interested in stocks with high income yields like AGNC Investment Corp or ZIM Integrated Shipping Services Ltd, but these yields can't last. In fact, the payout per share for both of them is going down over time, which makes them what I call "yield traps." Instead, you should focus on businesses that are doing the opposite and growing their dividends over time. There is a long list of these companies. stocks with pretty long records of dividend growth. I mean, if we look at Procter and Gamble, Lowe's, and Coca-Cola, we can see that all of them have grown their dividends for more than 50 years in a row!
Head Over Heart
Now we're at number 10. don't let emotions guide your investment choices. don't do it! don't do it! This is easy to say but hard to do. It's really important to keep an open mind and make investment choices with your head, not your heart. One way to do this could be to give yourself a two-week holding period. If something bad happens to one of the companies whose stock you own, you'll have time to think about it and find out what's going on instead of making a quick choice. I also like to think about it this way: a loss isn't a loss until it's written down. In other words, I thought enough of the company yesterday that I bought 10 shares. Yes, the stock went down 10% today, but nothing else has changed. I still have 10 shares. I gave up a cash position in exchange for a stock holding that hasn't changed. I remember that my college finance teacher told us to imagine that we were on a lift in a rocket ship. Even though the lift may go up and down between the floors of the rocket ship, the ship keeps going up. In other words, things tend to get better over time.
Uncle Sam's Cut
The eleventh thing I wish I had known more about when I first started is how dividends are taxed. Even though it's not a big deal at first, taxes become a much bigger problem as time goes on. when your portfolio grows and you get more money from dividends. Dividends are taxed in different ways. Companies like Procter & Gamble and Coca-Cola pay you approved dividends. Real estate investment trusts and business growth companies give you regular dividends. You get money back from master limited partnerships and money from them. There are a few different kinds of dividends, and learning how each one affects your taxes can save you a lot of money over time.
Be In The Know
The 12th thing I wish I had known when I first started out is how important it is to stay up-to-date. After you invest in a company, you should do your best to keep up with what's going on and know what's going on. You don't have to be aware of every little thing that happens every day. You should at least read the yearly reports and listen to the quarterly earnings calls. When I first started saving, I didn't do either of these two things. Just doing these two things can help you grow as an investor in a big way. They can really help you figure out what's going on with the companies in which you have money.
Number 13, you will make mistakes. And it's okay to make mistakes if you're going to be investing in dividends for the next 10 years or more. In that long of a time, you're bound to make mistakes. It seems likely to happen. but when you do make a mistake, it costs you money. Just think of it as your tuition. You're paying your dues and getting a valuable lesson in return, which you can probably think about and use to improve your investing skills.
Invest In You
Even though dividend stocks are a good investment, number 14 says you should also invest in yourself. There are many free tools out there, like YouTube. I think that spending money on books is a great way to learn how to trade better.
Among my favorite books about business, I like:
"The Richest Man in Babylon" by George Samuel Clason. This book was written in 1926, but many people think of it as the Bible of financial freedom. It shows time-tested ways to spend money. Even though the types of businesses have changed a lot in the last 100 years or so, this shows that the keys to building wealth are the same and haven't changed much over time.
"The Intelligent Investor" by Benjamin Graham. "The Intelligent Investor," which was first released in 1949, is often thought to be the only book you need to read to learn the basics of investing. This classic book talks about long-term investing and Graham's theory of value investing, which is why it should be on the bookshelf of every investor.
John C. Bogle wrote "The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns." Bogle started The Vanguard Group and made the first index mutual fund before he died. His motto was to spend with a plan, keep an eye on the long term, and cut costs as much as possible. He was also a fan of dollar-cost averaging, which is a way to invest slowly and steadily over time. The person who reads his book will know the difference between a good purchase and a risky one.
"Warren Buffett and the Meaning of Financial Statements," by Mary Buffett. Mary Buffett and David Clark have written a simple guide to reading financial statements from Buffett's successful point of view. They did this by getting an inside look at Buffett's thoughts. They explain Warren Buffett's strategies in a way that is clear and interesting to both novices and experts.
Enjoy The Journey
Last but not least, and this is probably one of the most important ones if not the most important one, is to enjoy the journey and commit to investing for your future. is one of the best things you can do for yourself, in my opinion. And because it takes so long to reach Financial Freedom, it's important to enjoy the process and celebrate all the small wins along the way. every penny you add to your investments. every new milestone you reach with your dividend money. Guys, pat yourselves on the back every time something like this happens. I know how hard it can be to get excited about spending, even when things are going well, because I've been there. But you will hit a point where your dividend snowball will really start to pick up speed, and it will happen sooner than you think. It will start to go places.