Dear DTA,
I just want to invest to so that my finances are improved for later in life.
-Brian F.
Thanks so much for writing in, Brian. It’s great to hear from readers just like you.
You have a pretty simple request here, which is certainly not uncommon.
Many people just want to have a little more financial security, especially when they’re older and perhaps not as capable of earning income.
The good news is that this isn’t terribly hard to accomplish, keeping in mind that even just a little extra cushion goes a long way.
I took a good look at my own finances back in late 2009, and I was horrified to realize that, at 27 years old, I was in debt and sported a net worth less than $0.
A dog is worth more than I was!
But I, too, craved financial security. I didn’t want to have to worry about money for the rest of my life. And I certainly didn’t want to have to work my weary bones off when I was an old man.
After taking some time to educate myself, I learned that mastering one’s finances isn’t as complex as one is led to believe.
In fact, the whole process is fairly straightforward.
One first has to make sure they’re creating a gap between earning and spending. Said another way, you have to be able to save a little money.
Even the best investment advice in the world won’t get you very far if you lack the capital to put to work.
After all, it’s far better (and easier) to have your money work for you than your body work for you.
Once you have some capital to put to work, you can invest.
And it’s at this juncture that you’ll want to critically consider your options.
But I can tell you that I’ve personally found dividend growth investing to be the best long-term investment strategy out there.
It’s the strategy I used to become financially independent in my early 30s, as the five-figure passive dividend income my six-figure dividend growth stock portfolio generates on my behalf covers my basic expenses in life.
This investment strategy is so wonderful because it attacks financial security from two angles: income and wealth.
Regarding the former, the passive dividend income that some of the best stocks in the world throw off to shareholders can result in a river of cash flowing into your wallet.
That’s because wonderful businesses are wonderful because they’re selling the kind of products and/or services that practically sell themselves, leading to a ton of profit.
And as these companies sell more products and/or services to more people at higher prices, that profit tends to grow over time.
Well, since shareholders are the collective owners of any publicly traded company, these companies share that growing profit with the true owners. And that sharing process occurs via growing dividends.
As such, a lengthy track record of dividend growth is often a very good litmus test of business quality, especially in terms of knowing whether or not a business values its shareholders.
As you can imagine, growing dividend income can become sizable when one regularly invests their excess capital in great dividend growth stocks.
Best of all, that income will likely grow organically, through no ongoing work on the shareholder’s part, because of the mechanisms I just explained.
And this income is truly passive, meaning you could one day sit back and be paid just to be alive.
Meanwhile, the investment strategy also grows one’s wealth because these companies become worth more as they sell more products and/or services, increasing their profit through that process.
As a company becomes worth more, there’s an eventual recognition of that in the stock’s price and valuation.
This increases a shareholder’s wealth, again through no ongoing work on their part.
And since the dividend income is passed on as part of the underlying profit a business is generating, this allows one to keep those shares, potentially forever. You’re collecting ongoing and increasing income without selling shares.
This means your wealth is growing all by itself, and you’re not forced to reduce your wealth by selling off shares (in order to generate income to pay bills).
You’ll easily recognize some of the best dividend growth stocks out there.
Think Procter & Gamble Co. (PG), Johnson & Johnson (JNJ), The Coca-Cola Co. (KO), and Apple Inc. (AAPL).
You can find more than 800 US-listed dividend growth stocks by checking out David Fish’s Dividend Champions, Contenders, and Challengers list, which has compiled data on stocks that have paid an increasing dividend for at least the last five consecutive years.
As you can see, a little extra financial security isn’t that difficult to accomplish.
And to further help you in this endeavor, fellow contributor Dave Van Knapp put together a series of “lessons” on dividend growth investing that serves to educate novice and experienced investors alike on what dividend growth investing is, why it can be so successful, and how to implement it in your life.
Furthermore, once you’re ready to put capital to work, I highlight a compelling investment idea every single Sunday via the Undervalued Dividend Growth Stock of the Week series.
These are free long-term dividend growth stock ideas that are put through a rigorous fundamental and valuation test, which means I’m only putting forth some of the best dividend growth stocks at the best valuations.
I’ve done my best to provide some great initial advice.
And you have some fantastic tools at your disposal, Brian.
But it’s ultimately up to you to take action.
Since that’s the case, I’d strongly recommend you start improving your financial security 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.