Dear DTA,
I want to play catch-up on my investments. Several years ago, I sold all of my stocks after a nasty divorce. I need to build up my investment accounts again.
-Wallace R.
Appreciate you taking the time to subscribe and write in, Wallace. We’re here to provide actionable information to readers like yourself, but we’re now taking it a step further by answering questions personally, meaningfully, and directly.
We want to help readers like yourself reach your long-term goals.
First, I’m sorry to hear about the divorce and the subsequent loss of wealth. That must have been a terrible time in your life.
[ad#Google Adsense 336×280-IA]But life keeps moving. And we must move with it.
The key in life isn’t what happens to us, but rather how we respond to events.
As such, it’s great that you’re motivated to pick up the pieces.
I’ll tell you that I also had to play “catch-up” not too long ago.
In my case, it wasn’t a divorce that set me back.
It was my own bad decisions with money that left me broke and unhappy.
Indeed, I was worth a negative amount of money back in early 2010, just over seven years ago.
My liabilities outstripped my assets, leaving me more than $20k in the hole. Although I was only 27 years old at the time, I was certainly well behind the eight ball.
But I was determined to climb out of the hole I dug for myself.
My ladder – my lifeline – out of this hole was saving and investing.
Well, things worked out incredibly, as I was able to quit my full-time job at 32 years old. And I reached financial independence at 33 years old, becoming “free at 33”.
And you can see exactly what I did by checking out my “blueprint” to early retirement.
Suffice to say, I had to aggressively budget and cut every expense that wasn’t an absolute necessity to survival.
I became so proficient at frugality that my savings rate averaged well over 50% for years on end.
After maximizing my savings potential, I went on to also maximize my earnings potential. You can only cut expenses so much, so it makes sense at some point (after you’ve got the spending under control) to see what you can do to improve your cash flow.
For you, that might mean more time at work for the next year or two while you catch up. Overtime. An extra shift or two. If that can’t be done, a second (part-time) job might be necessary.
And then it’s time to invest your excess capital, as you’ll no doubt have capital if you really maximize your earning and saving.
The investment strategy I personally chose to climb out of my hole and catch up is dividend growth investing.
This method generally involves buying and holding shares of fantastic businesses that have excellent fundamentals and strong competitive advantages. And you buy these shares when they’re attractively valued.
What you want to look for is a longstanding track record of increasing profit, which tends to manifest itself because of a company selling more products and/or more services to more people.
A great dividend growth stock example might be PepsiCo, Inc (PEP).
This company is selling beverages and snack foods to billions of people all over the world.
And they’re able to increase their profit over the long run because they’re able to sell more products (Pepsi, Doritos, etc.) to more people in more places, while they’re simultaneously able to increase the prices on these products over due to pricing power and brand loyalty.
Multiple levers like that can ensure increasing profit over time.
And this increasing profit, when it comes to high-quality dividend growth stocks, translates into increasing dividend payments.
After all, you wouldn’t want to invest in a company that doesn’t increase its profit over the long run.
Well, shouldn’t shareholders (the collective owners of a publicly traded company) receive their rightful share of that increasing profit?
See, growing dividends are the “proof in the pudding”. I don’t want a company to tell me how much profit is growing; I want them to show me.
I mean, that’s my money. When I own stock in a company, I own a slice of the company and all the cash flow it generates. And so I want my fair share of that. As that cash flow grows, so should my fair share.
I’ve followed this investment strategy since I began climbing out of that hole back in early 2010, and it’s led to a real-life, real-money, six-figure dividend growth stock portfolio.
That portfolio generates five-figure (and growing) passive dividend income for me.
As Pepsi sells more product, and as their profit grows, my income increases. It’s the easiest “job” I’ve ever had!
But Pepsi is just one example.
You can find more than 800 US-listed dividend growth stocks by checking out David Fish’s Dividend Champions, Contenders, and Challengers list.
Of course, don’t take my word for it. Do the research on this investment strategy to make sure it fits you and your goals.
A great resource toward that end is fellow contributor Dave Van Knapp’s dividend growth investing lessons, which is a series of articles that cumulatively teach the dividend growth investing strategy (why it’s so incredible and how it works) from scratch, so you should definitely read through these.
And when you’re ready to finally put capital to work, I provide real, valuable, and actionable ideas regularly, where I highlight an undervalued dividend growth stock every Sunday.
I commend you for looking ahead rather than looking behind you. You can’t climb out of a hole if you’re looking at the ground. And you can’t drive if you’re staring in your rear view mirror.
You can play catch-up and get those investment accounts built up again, Wallace. You were there once before. So you can be there once more.
But you have to stay on task, remain motivated, and take action.
Well, there’s no better time to take action than today.
I wish you luck and success.
Jason Fieber
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Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.