If I need to win your trust through this guide on all matters investing then I’d better be honest with you.
So to tell the truth, I have no idea if 73% of people that get into investing fail because they do not understand how a dividend growth portfolio works.
But I can tell you that it certainly feels like it!
When people begin to even think about the idea of investing, they usually jump right into the technology aspect of things.
This makes sense because investing happens online and on apps nowadays.
No more calling up your banker and then your brokerage guy every step of the way.
It’s just so easy now to get started when it comes to buying stocks.
Too easy, I’d argue, that it’s just as easy to miss out on the big picture before the pop-up on your Robinhood app prompts you to proceed with the technical steps in investing.
- How do I decide on which brokerage should I use?
- How do I set up a trading account?
- How do I deposit funds into my account?
- How do I input a trading instruction?
So many technical questions!
However, that isn’t where you should start with investing, and the reason why is because you need to know if you even stand a chance of creating a successful investment portfolio or not.
You don’t invest in a bottle of red wine from Chateau Lafite Rothschild 2000 if you’re allergic to alcohol.
(Yes. People do invest in red wine.)
You need an investment plan and for that, you need to understand how your dividend growth portfolio works.
You need to visualize how dividend growth investing will take you from A (you sitting in front of the computer reading this guide claiming it’ll help you reach financial freedom) to B (actually arriving at financial freedom).
A Little Recap.
You’ve come a long way since the start of this guide.
Let’s take a step back here, breathe out, and zoom out to the big picture.
This is what we’ve talked about so far:
- Financial freedom is about honouring your most precious resource —your life energy.
- Being free = having enough, not more.
- Money is what we trade out life energy for.
- Getting paid is the only goal of paid employment.
Therefore, as the logic flows:
- We will arrive at financial freedom once we have enough money for what we need.
- After which we will be freed from paid employment to pursue what we truly value in life with the “extra” life energy that has not been used to trade for money.
Up to this point, if this sounds like your standard frugal wealth management approach and working at your paid employment till you’re sixty-five, it is.
This is where dividend growth investing comes in.
Dividend growth investing is the accelerator of this process.
It allows you to put in the work now, so you’ll be able to reap the rewards earlier.
If this sounds like magic, it isn’t.
Dividend investing is about consciousness, discipline, fulfillment, and choice.
As I’ve mentioned, your dividend growth portfolio is your business.
It is your paid employment to run this business.
And it WILL take you to financial freedom.
If you’re ready to make this choice, here’s our game plan.
The game plan.
Each dividend company within your investment portfolio will pay out a cash dividend every three months.
This dividend will cover your monthly expenses.
To calculate the amount of money you’d need to invest in your portfolio, you will have to know its dividend yield.
Dividend yield = dividend amount divided by portfolio amount.
Say the target dividend yield for your portfolio is 3%. (Bear with me on this assumption. We’ll discuss further later.)
If your monthly expense is $1000 (remember our goal is to start small and to cover your personal expenses only), your portfolio size must stand at $400,000.
$400,000 invested × 3% dividend yield ÷ 12 months = $1000 cash flow per month.
If you earn a median annual salary of $40,000 and are able to invest two-thirds of that i.e. $27,000 into high-quality dividend growth stocks, you’d have a $400,000 portfolio in 15 years.
By that time, the dividend generated from your investment portfolio will cover all your living expenses without any additional work for you.
You WILL reach financial freedom after 15 years.
You Must Be Kidding Me.
Yes, 15 years.
You heard me right.
Don’t look at me like I’m the latest scammer-financial-guru-on-TikTok.
I’ve come clean from the start.
I told you this guide won’t be some get-rich-easy guide.
It is called the Simply Dividend Guide though.
Because I think this system of achieving financial freedom is simple enough for anyone to understand AND achieve — if you are willing to.
Anyone can almost smell that sweet scent of liberty at the end of these 15 years.
When you come to think about it, 15 years isn’t a long time either.
If you’re 20, you’ll be financially free at 35.
If you’re 30, you’ll be financially free at 45.
If you’re 40, you’ll be financially free at 55.
If you’re 50, you’ll be financially free just “on time” at 65.
It takes work.
Hard work, might I add, which you get paid for in the next quarter, 15 years later, and at your funeral.
What if you bumped up your annual salary from $40,000 to $50,000? — You’d be financially free after 12 years instead of 15.
What if you shaved off $200 from your $1000 monthly expense? — You’d be financially free after 8 years instead of 15.
What if you invested three-quarters of your income instead of two-thirds? — You’d be financially free after 13 years instead of 15.
Well, what if you really buckled down for this financial freedom thing and did all the above? — God knows what kind of financial miracle will happen.
And this financial miracle takes consciousness, discipline, fulfillment, and choice — to increase your income, to reduce your daily expenses, and to invest the difference in between.
- Earn more revenue
- Push costs low
- Convert that difference into profits
- Capture those profits as a cash flow
You’ve got to have these memorized by now.
Since dividend investing will take care of that secret sauce called cash flow.
The paycheck that comes in every quarter without you having to work no more.
Because this guide is not only about how your dividend growth portfolio works, but even more about how this portfolio can work for you.
Buy Low, Sell High?
Some investors will tell you that you need to follow the aged mantra of “Buy Low, Sell High” and somehow everything else will fall into place.
They call this “Price Arbitration”.
How Fancy.
I don’t know if that is true or not because I tried following that advice but gave up soon after.
I gave up not because it didn’t work.
I’m sure it happens to some people but that feels more like luck than anything.
It’s easy for Cathie Wood to say that she bought into Telsa at a bargain and now is making a killing with her ARK ETFs because we’ve just come out from two of the longest bull runs ever in financial history, but how many people are still only at breakeven 20 years later after “buying low” during the Dotcom bubble?
I gave up because it was too much work.
An investment represents money that is supposed to work for me right?
Having earned my money once already, why should I have to work for it all over again?
I invest for two reasons:
- To make money allowing me to live the lifestyle that I want.
- To make time away from paid employment.
Both of these reasons involve breaking away from the traditional chains of “work” which we’ve discussed — that is working for money.
Don’t get me wrong, if investing, reading financial statements, and analyzing endless candlestick charts were your preferred lifestyle and it earns you money — by all means, go crazy on it.
But I doubt that’s the case for most people.
The epitome of investing lies in the overused cliché of “passive income”.
And I can assure you, there’s nothing passive about most investing happening in this day and age.
When it comes to redundant and wasted effort, little else tops the stock market.
I came to this conclusion (not once, but twice) long ago during my dabbling in biotech stocks.
We work much harder than necessary when it comes to investing.
The ups and downs seem to promise great wealth if only the investor can time the buys at lows and the sells at highs perfectly.
The trouble with this mentality — in addition to poor odds of consistent success — is that it puts almost 100% of the responsibility for profits on the back of the stockholder rather than the stock.
It is as though the stock market is not about business at all, but rather a grand game pitting wily investors against each other in attempts to beat the market and each other.
My goal isn’t to invest in stocks for years on end, clocking in day-in-day-out with the market’s bell as if another nine-to-five in disguise.
My goal isn’t to pour my life savings into a stock just to watch unrealized gains (or worse, losses) on paper.
I want to get an investment portfolio up and get to cash-making as quickly as possible.
I know you’re the same way.
And the fact remains that stocks are capable of providing attractive returns for their owners.
Treated as long-term partnership stakes in profit-generating businesses with growing revenues and well-managed expenses, stocks are highly useful tools —
Tools for storing value, tools for generating income and accumulating wealth, tools effective enough to meet a lifetime’s worth of financial goals.
But if we are to shed the game mentality of our fellow investors, our stocks must provide an alternative source of reward.
Rewards with no additional effort.
Rewards not subjected to the whims of Wall Street.
Above all, rewards paid in cash.
This is where investing in dividend growth stocks closes the loop in our endeavor:
Investing in dividend stocks as a business, building up a dividend cash flow, and then enjoying that consistent reward IN CASH down the road with minimal maintenance time and effort.
The Three Musketeers Of Dividend Growth Investing
If you really want to improve your odds with investing success, then I suggest only looking at the Three Musketeers of Dividend Growth Investing.
Yup, I made that term up and I love it.
Who are the Three Musketeers?
- Insight
- Income
- Independence
Before you freak out it’s important to understand that these values of dividend growth investing are learnable.
Nobody is born with these values.
They are acquired as we journey through our financial lives, hiking over mountains, waddling through streams, crossing fields, and most probably with a few stumbles and falls along the way.
Why do I believe in you and in your eventual ability to live out these values of the Three Musketeers?
Well, because if you are still reading up to this point, I trust that you’ve already met our first Musketeer — insight.
Insight into your relationship with money and paid employment.
Insight into the futility of “investing” in the traditional sense of buying high and selling low.
And most essential of all, insight into the possibility and your ability to achieve true “financial freedom” through dividend investing.
Because you know that dividends are worth much more than the sum of cash flow they generate.
Not only are they a symbol of quality for the companies that pay them consistently.
They also represent the key to a lifestyle that would never be available even if the salary from your paid employment exceeds it by twenty-fold.
It is with these Insights that we come to our second Musketeer — Income.
At the bottom of it all, it is income, not capitals gains, that most investors need to meet their financial goals.
While the Teslas and Bitcoins of this world are far and few, it really does not matter because you don’t need them to achieve financial freedom.
Chasing after these financial fads will lead you astray to what you want but not what you need.
Fortunately, many conservative, well-managed, and economically attractive businesses are prepared to provide good income through dividends.
There is nothing more reassuring than knowing that with Insight and Income we will eventually meet our third Musketeer Independence.
I strongly suspect that most investors would just as soon not live their lives entangled with Wall Street’s never-ending pageant of fear and greed when we’re attempting to break free from our mental chains of “more is better” and “nine-to-five”.
Dividends, by contrast, set the investor free from fickle market prices and unreliable capital gains.
1% per day
What is 1% per day?
These are investments that will earn you 1% in profits every day.
This seems like the target every trading course out there is touting.
At first glance, it doesn’t appear THAT unrealistic.
The market does rise and fall by roughly 1% a day.
How hard can it be to bet on the right side of this movement over time?
What isn’t hard is to see why this is an unlikely investment goal.
When you consider the compounding effect, or interest on interest, a 1% daily return can turn a $100 investment into almost $700 billion in 9 years.
And congratulations, you just became the richest person in the world!
Not bad for an initial effort of setting aside $100.
For your information, Elon Musk, the richest person now, has a net worth of $200 billion.
Clearly, 1% a day isn’t a reasonable expected return.
So are the more moderate annual returns in the high double-digits.
But Nic, that can’t be true, I just doubled my money this past month!
That’s great, and I mean it, but achieving a one-off spike in returns doesn’t mean that you’ve unlocked the key to the stock market.
What we’re actually after here, is consistency.
Consider, for example, Warren Buffett.
He has been able to attain “only” a 20% annual return over the past 30 years.
If Buffett is regarded as the most legendary investor of all time, chances are that the rest of us are going to fall short.
What can the average investor expect?
Rather than promise 100X returns — which would probably be 100X the amount of traffic to this guide — only to deliver the mud beneath my boots, this guide sticks to promising the realization of the Three Musketeers of Dividend Growth Investing.
We are looking for a more sobering expected rate of return of 10-12%.
That’s before taxes, just to keep things real.
Such returns are well within the reach of a simple, low-maintenance dividend strategy, turning $100,000 into $1.1 million.
If you are willing and prepared to follow my advice for the next 15 years.
It’s also possible to generate income from this same portfolio of dividend-paying stocks equal to 6-7% of its initial value without any need to trade.
Best of all, this income can and should grow faster than the cost of living.
If your true goal of starting an investment portfolio is to quit your paid job, support your family, travel the world, or do something that you’ve been dreaming about then why make things more difficult by gambling your hard-earned life savings on other unfounded investment strategies.
What I’ve come to learn is that I can really persevere with an investment strategy once I start making money with it.
This is very true for dividend growth investing.
With the anticipation of dividends coming in quarter after quarter, we are less motivated to change strategies or pursue higher risks in the face of inevitable market fluctuations —
Simply because the dividend income would have already have covered what we need.
In a way dividends allow us to redesign our financial freedom with this newfound patience as staying invested is the key to accumulating wealth.
OK, so where should we begin?
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