I often meet with people that are looking to start their own investment plans. In fact, several readers find The Dividend Guy Blog or my Free Dividend Investing eBook during their search for beginner investing information. For the past 2 years, bond rates have been so low that more investors are heading towards dividend investing as it represents one of the best investment strategies considering risk versus reward.
However, it doesn’t mean that dividend investing is easy! As a a matter of fact, it isn’t! So before you open up a trading account and dive head first into the stock market ocean, there are a few things you need to know:
#1 Dividend Investing is Boring
In fact, investing in general is pretty boring. But dividend invest is even worse! Why? Because dividend investing requires time and patience to be effective. Therefore, you should not be looking for a quick 20% on a lucky trade when you purchase dividend stocks. You should be looking at a long term investment. The beauty of dividend investing lies within… the dividends! But to make it powerful, you need to wait years and years. Therefore, you are simply holding your stocks and waiting. How boring is that?
While some day traders are executing 10-20 trades per day, you may not even hit that over a year! Once your portfolio is built, you will look at your DRIP go and adjust your asset allocation once a year to smooth it out and follow your investing strategy.
#2 You Could Lose a LOT of Money
Hey! If you have entered the stock market in July 2008 or more recently, on August 1st, 2011, you know what I am talking about. Regardless if you are a PhD Finance combined with a CFA; you could still lose money on the stock market. The worst part is at times, even if your trade idea is good but the market is bad, you could lose cash. Therefore, even if you are holding great stocks in your portfolio, you will see dip as the market goes down.
If it happens to you, you should read what you should do during a market crash, it will help you better understand your next move in a bearish market. In the end, if you have a solid dividend portfolio and you stay still during the meltdown, you will be rewarded and end-up making money after all.
#3 This is the Right Time To Invest
I’m publishing this post on August 15th but I wrote it on August 5th (during the black Thursday & Friday). However, this post is timeless. Mark my words: today is always the right time to invest. Because if you don’t do it today, you won’t do it tomorrow either! I’ve seen people waiting days, weeks even months before making a trade. Actually, they are leaving precious dividends on the table. When there is a market dip, it’s always better. But in the end, since you are investing for the long run, there should not be such a thing as market timing!
#4 Asset Allocation is a Must in Your Investment Strategy
In real estate we talk about location, location location. In investing, we should talk about allocation, allocation, allocation! Before you put your first dollar in a trading account, you should establish the plan for your future asset allocation.
Do you want to be concentrated in a specific industry because you believe in it? Some people are holding a big part of their portfolio in consumers, utilities or Canadian banks for example.
Do you want to be diversified in several sectors combined with bonds in order to smooth out your investing yield?
Are you ready to ride the roller coaster or simply take a smooth ride on a train?
These are the kind of questions you must answer before you start your investing journey.
#5 Dividend Investing Is The Best Way To Start Investing
If you are not convinced that dividend investing is the best way to start investing, I think you should read my book. It will show you how dividend investing is relatively easy compared to other strategies and how it could produce some great returns over time. After all, more than 50% of the stock market return is produced by dividend yield!
In order to get more info about dividend investing, I suggest you subscribe to my free newsletter. It will be a great help to support you in your investing journey!
Great article! I for one kept putting off investing and this month forced myself to go through with it. It was a lot easier finally admitting to myself that my risk tolerance was low and going through with it than saying I’ll wait for the right time in the market.
You have compiled the most inclusive website on dividend investing I have ever seen. Great job.
The only thing I might disagree on is the fact that dividend investing is boring. I personally get extremely excited when I see dividends roll into my brokerage account. Cash is king! The other reason it’s exciting is that if you execute it correctly it’s one of the few sure-fire ways to grow your wealth. I’m very, very excited to see where I’m at 10 years from now.
I totally agree with you; I really find exciting to build my dividend portfolio. On the other side, I know that when I will have less cash to invest, I won’t be making any trades. This could become boring at one point.
The Wealthy Canadian
From a personal standpoint, I really like the point you made about not waiting to invest. I’ve also heard countless stories of people waiting for the perfect entry point, but like you said, time is money and you’re not getting paid to wait while on the sidelines.
Take Inter Pipeline (IPL.UN) as an example. It pays a monthly distribution and has a current yield of 6%. By investing $3,000 into this position, you’re in the money from a cash flow stream perspective of $15/month. By waiting 6 months on a position like this, the investor would be out $90 of dividend income.