My Concern for You
I have shared with you how the Dividend Lifestyle has impacted my family in a positive way, but let’s examine what unfortunately happens to many “investors” today who are not practicing these techniques. Suppose a person is buying and selling stuff based on the headlines, or they have an active advisor who is getting in and out constantly chasing the latest greatest opportunity they saw on a CNBC commercial. In that case, you’re really missing the boat when it comes to the compound interest effect. You aren’t getting the stock splits as my Dad enjoyed. You aren’t getting the tax and cost advantages either.
The compounding effect works the best when it’s done over a long period by owning the same stocks, not by bouncing in and out actively trading. The buy and hold approach is a considerably more tax and cost-effective practice. The compound interest is much greater with passively investing in quality stocks for the long run because you’re getting dividends on top of dividends and accumulating more shares. As long as you continue reinvesting those dividends, you’re getting more dividends next year because you own more shares. The next year, it’s even more and so on. You even are buying in at different price points. This is called dollar cost averaging, meaning you’re buying more shares with your reinvestments when the markets dip. Then one day, you wake up ten years later, and your 100 shares is now 1,000. This exponential growth process is astonishing and truly the eighth wonder of the world.
Disclosures: Investing involves risk and you may incur a profit or loss regardless of strategy selected. Dividends are not guaranteed and must be authorized by the company's board of directors. Investments mentioned may not be suitable for all investors. Prior to making any investment decision, you should consult with your financial advisor about your individual situation.
Dollar-cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low price levels.