Dividend investing is a buy and hold long term strategy. There are no shortcuts or get rich schemes when it comes to dividends. Your biggest ally is time, as more time passes and compounding begins to take effect the dividend payouts grow substantially. The sooner you begin this journey the better.
Now before you jump in head first your financial house needs to be in order. First pay off high interest credit card debt and setup an emergency fund. This money should be set aside in savings account and the amount will vary depending on your monthly expenses. In most cases an emergency fund should cover 3 to 6 months worth of expenses. If the need arises to dip into this account then it would be imperative to replace the used funds as soon as possible. As for credit cards, if used correctly they can be an asset. Improved credit score along with rewards and perks to name a few. I wouldn’t charge anything I couldn’t pay off at the end of the billing cycle. If you can’t afford it, create a budget and save up don’t put it on a credit card charging you 18%.
Now that you have a stable foundation get into the habit of putting aside a portion of your take home pay. Your just starting out so it doesn’t need to be large amounts, be it $50 a week or $100 a month, the key is to start and get into a routine. We will get into what type of account to open in a future article but if your employer offers a retirement savings account such as a 401K ask to enroll and start contributing. It’s the easiest form of investing as it automatically comes out of your paycheck and there’s no need to transfer money into accounts. If that’s not available a brokerage account would be a good place to start.
Understanding the nuances of the stock market can be overwhelming. So many numbers, ratios and averages, it can quickly get your head spinning. The safest place to begin is in a low cost mutual fund or ETF, they both comprise a basket of stocks for easy diversification. Vanguard is very popular among passive investors for their low fees and vast fund choices.
Let’s look at 2 same aged investors both contributing the same amount the only difference is starting point. One starts investing early at 25 years old and only invests for 10 years where as the other doesn’t begin their investing journey until they are 35 and they continue to add to the portfolio for 30 years. You would think that 30 years of contributions will easily outgrow the 10 years but the magic of compounding makes that first dollar grow at an accelerated rated. Reference the chart below courtesy of JP Morgan Asset Management.
This is why I always suggest to start as early as possible even if it’s a small amount. Your future self will thank you! When I think about it now it’s the single thing I would change if I could go back to my early 20’s. Additionally the higher your savings rate at an early age it can snowball into a portfolio that allows you to achieve FIRE… Financial Independence Retire Early. Reward your future self by laying the ground work now.