By Christopher Kuretich
As an investor for the last 14 or so years I have grown and refined my strategy. I feel fortunate that I found dividend investing in my 20’s. Building a high quality lower risk dividend portfolio is one of the safest and surest ways to retire.
A lot of experts will tell you the opposite and want you to trade stocks for high reward, but that comes with higher risk. They will tell you that they are the ones who can help you and stick you into a bunch of mutual funds for the most part. Hopefully they pick good ones with low costs, management fees, and expenses. They will not advocate doing it yourself because quite simply they want your business. Now I realize people are busy and there are times where people need a professional service, but I believe almost anyone can invest for themselves.
I prefer to invest in well-known individual securities that pay out a dividend. A dividend is simply a sum of money paid to you as a shareholder from what the business earns. You can then either receive that money as cash, direct deposit, check, or you can reinvest that dividend to increase the amount of shares you own. The latter in many cases can show the magical effects of compounding as it increases your money as long as the dividend stays constant or is increased over time.
Dividends vs Distribution
If or should I say when you reach retirement age, you will have to find a way to replace the income you made while working. If you are like me you won’t want to rely on anything or anybody else’s far away promise to take care of you. This is the reason I think most people should invest for themselves. Nobody should care more about your future life than yourself. This website is called I Am The Future Me for a reason! You should do everything can to make the future you appreciate the sound choices you made for yourself earlier in life. The two applicable strategies from an investment standpoint I see is withdrawing money out of your accounts to cover retirement costs. This is what distributions are. This money gets extracted out typically by a certain selected percentage you choose each year and it’s out of that account to be spent or saved for the future. There is a chance you live longer than expected and run out of money to live on in your later years with this strategy.
The other choice is to live off your dividends. This strategy seems much more desirable for various reasons. One being you do not have to sell your shares in the stock. Secondly, you can still choose what to do with that cash by keeping the dividends to be reinvested or collecting the cash and selectively reinvesting the money wherever it needs to go to. In a Roth IRA you are free from taxes on the dividends and in a non-retirement traditional brokerage account you can retire earlier than 59.5 and live off those dividends. With dividends there are always the risk of cuts if the business runs into financial trouble. Dividend investing is not always an easy path to take. The benefits outweigh the risks for those looking for an alternative strategy to retirement income in my investment opinion. This is not something you will hear talked much about among various financial news networks or financial advisers.
Christopher Kuretich is the founder of The Dividend SWAN. His main focus is creating income from investments to cover expenses and discover the opportunity of early retirement. He has also contributed to TheStreet.com and added to the conversation throughout several blogs in the online financial community. You can reach him at email@example.com
I value the feedback and the community’s thoughts on this. What strategy do you use or plan to use? Why? Would you mix the two?
Image courtesy of jscreationzs at FreeDigitalPhotos.net