The Psychological Benefits of Dividends, And Why I Will Always Love Dividend Stocks
The psychological benefits of dividends are not to be understated. The fact that you can buy a blue chip stock, or an index fund, via EFTs, that pay out a quarterly dividend, in perpetuity, is really astounding, and is something that I think everyone should take advantage of in full. The investment philosophy that I am using right now is that you should get some type of interest on virtually every single dollar that you have, and that you should get some type of points back on every single thing that you buy. With these facts in mind, I would like to take the time to describe our psychology as humans, and of how your investment strategies can be proofed in order to sit correctly by your emotions. For me, I really like security, and a large part of this is that I am able to see my bank account increasing every single day, week or month, and that I am able to see continued career and financial growth going forward. A large part of this security is that I always have an income, and while I know that leaving your stocks in the market for a very very long period of time is the best way to go, this need for income might lead to me trading my portfolio more than I would ideally like to. Enter, Dividend Yield Stocks.
Some of the dividend stocks that I am planning on dabbling in once I get situated in my new career here, give or take 6 months or so, are the below:
SPY, and S and P 500 Index fund ETF that pays a dividend
Kraft Heinz, pays a good dividend
REITs that pay a monthly dividend
QQQ, a tech heavy index fund that pays a dividend
AAPL, pays a dividend
VT, a global index fund that pays something like a 1% dividend
And a host of other stocks with decent dividend yields, read on or subscribe to our blog for additional details and information!
The Psychological Benefits of Dividends, How Adding Dividend Stocks To Your Portfolio Can Make You Money
My take on dividend stocks is that they are mathematically irrelevant, and that you are actually hurting yourself, in terms of a pure math problem, by going with a dividend strategy. Now, that would be true if humans were pure binary, if they were robots without fears and emotions, but they very much are not, and psychology and temperament play the most important part in your investment strategy. The real benefits of dividends coming out of your portfolio, is that you are able to keep your money invested longer, because you FEEL more financially secure, because your income is higher and more permanent. I still would only recommend allocating around 20% to 35% of your portfolio to say a Dividend Growth Investment model, with the rest going into Index Funds that can also pay a dividend. An example of this that makes me feel secure with my portfolio is the following. If fortune holds, I should have something like $65,000 or $70,000 by summer, and here’s what my portfolio will be allocated to in this instance.
Emergency Fund: $30,000
$25,000 in Pure Savings Account, hopefully 75 bps by then (Income of $187.50 per year)
$5,000 in a CD ladder that hopefully gets me around 125 to 150 bps by then after the interest rate increases (income of $75 per year)
$45,000 in Stocks
SPY: $30,000>>>$585 per year in Dividends
KO: $3,000>>>$88 per year in Dividends
VT: $5,000>>>$50 per year in Dividends
MCD: $2,000>>>>$60 per year in Dividends
QQQ: $5,000>>>1%>>>$50 per year in Dividends
Just off of this little baby portfolio here, including my savings account interest, is going to net me something like $1095.50 per year in a combination of interest and Dividends. This is in a combination of monthly and quarterly dividend payments, and it will give me motivation to continue putting money into the stock market, and holding it there for along time (as I see my income and net worth increase drastically) rather than take money out or make trades out of fear. This is something in between an Index Fund Portfolio and a Dividend Growth Model type portfolio, and it will increase my serotonin enough to make me feel comfortable so that I keep putting money back INTO the stock market, on top of holding my securities in there, rather than pulling money out. Provided I can get in the swing of things, and that I can do this job for like ten years, I could very well hit a net worth of $1,000,000.00, which is a little crazy to think at my ripe old age of 27 here, but it is what the math works out to. Other things I am going to add to my investment strategy are the following:
Continue investing and growing my internet websites for additional income to put into my stock portfolio.
Impulse buy random stocks that I’ve always wanted to own, like Phillip Morris, or Kraft Heinz, or a REIT that all pay dividends. Rather than going out to dinner with friends, put the $40 I would have spent into Kraft Heinz and collect quarterly dividends and market appreciation on the money for life!
Try to move up in my career as quickly and aggressively as possible
Invest into my company’s 401K
Take the money from my Health Savings Account and Invest it into the market as well
Invest around 1% of my income into my company ESOP, Employer Stock Option Plan. I am putting a very small amount in here to add some risk to my portfolio, and over the long run, this could lead to another $20,000 or $50,000 that I didn’t even know about.
Start contributing to a Roth IRA, fully fund this as much as possible.
Use $10,000 from my Roth IRA to buy a Duplex on a foreclosure sale in about 5 years once I hit the 5 year rule on my IRA and once the housing market cools down. Continue living in a 2 bedroom apartment in student housing for $1,000 per month and rent out both sides of the Duplex for as much as $3,000 per month in income. I am hoping I can get a $350,000 Duplex house for something like $200,000 at a foreclosure auction in 5 years, this one is more speculative.
Final Thoughts On The Psychological Benefits of Dividends, And Why They Are More Important Than The Actual Returns
So the gist of this article is to show you that the real benefit of dividends is that they help you to keep your money in the market! Personally, I like the feeling in my gut of having as much financial security as possible, I have been both unemployed and in debt before and they both scare the heck out of me. I like the feeling of having a pile of cash and income so that I always know I can buy groceries and pay rent. The benefits of dividends and an emergency fund for me is that my cash reserves and my income feel high enough to keep putting money into the stock market, and to keep enough money in the stock market that I let it grow for decades. What do you think of my investment strategy? Read on or subscribe to our blog for additional details and information!
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