Dear DTA,
Quick question. It seems like I need a pretty decent amount of money in order to get started with trading or investing. Is that true?
-Jordan P.
Hi, Jordan,
Appreciate you writing in.
The question you’re asking relates to an old adage:
“You need money to make money.”
Is it true?
Yes, to a degree.
You can’t earn a return on money not invested.
But it’s also true that you don’t have to have access to gobs of capital in order to become successful.
I’m a great example of that.
In my Early Retirement Blueprint, I lay out how I went from below broke at 27 years old to financially free at 33.
I went from less than $0 to retired in just six years.
And I did that on a very middle-class income.
It required an immense amount of will and discipline.
I had to live well below my means in order to generate the savings to invest.
Some would say I sacrificed.
But I’d argue it’s much less of a sacrifice to live below your means than to have to work until you’re in your 60s or 70s.
Any “sacrifices” I made were all worth it, in my view.
I was able to build my FIRE Fund in a very short period of time.
That’s my real-life and real-money dividend growth stock portfolio.
It generates the five-figure passive dividend income that I live off of.
Now, I don’t know what kind of money you make. I also have no idea what kind of lifestyle you live.
However, you’ll want to do whatever you can to increase the former and reduce the latter.
It’s imperative to create a healthy delta between your income and expenses.
This puts you in a fantastic position to intelligently invest that excess capital and become financially independent relatively quickly.
A lot of people are cutting coupons and negotiating their cable bill.
That’s great.
But if you really want to have financial success, you’ll have to home in on your big expenses.
Think what I call the “big three”: housing, food, and transportation.
This is where most people spend most of their money.
And it’s where most of your potential investment capital can be found.
The path forward may involve modest downsizing, eating out less, and driving a car that’s less fancy.
Again, you’ll have to decide for yourself if these moves are worth the stretch.
But I think you might be surprised at just how much a little bit of money can add up.
Compounding is an incredible force.
You should take advantage of it as soon and often as possible.
I’ll give you an example.
Let’s say you can invest just $500 per month.
This isn’t a lot of money.
Assume you start investing at 25 years old and you’re able to put away this much over 20 years.
I’m going to factor in a 10% annual rate of return, which is right about what the broader stock market has historically returned.
This gives you just over $378,000 at the end of 20 years.
That’s a very nice chunk of change.
It requires nothing herculean. Nothing extraordinary.
Just a little bit of money consistently saved. And an average rate of return.
But I think you can do much better, Jordan.
How do I know?
You’re here. You’re reading this content and writing in to us.
It’s clear that you’re interested and making an effort.
I’m willing to bet that you can save and invest even more than $500 per month.
In addition, you might even be able to outpace that 10% annual rate of return.
I already showed you my personal stock portfolio earlier.
And there’s nothing stopping you from building something similar.
The investment strategy I’ve used to build my FIRE Fund is dividend growth investing.
This strategy has allowed me to do incredibly well. And it can work for you, too.
Dividend growth investing can be summed up very easily.
It’s investing in high-quality companies that have longstanding track records of paying their shareholders reliable and growing cash dividends.
Take a look at the Dividend Champions, Contenders, and Challengers list.
It contains information on more than 800 US-listed stocks that have raised their dividends each year for at least the last five consecutive years.
You’ll notice many world-class enterprises that are household names.
Shouldn’t be a surprise.
It takes a wonderful business to produce the growing profit necessary to sustain growing cash dividend payments.
It’s tough to do something like that for just a decade.
Now imagine doing it for three, four, or five decades in a row!
These are the businesses I’m talking about and investing in, Jordan.
They’re also the businesses that Warren Buffett is talking about and investing in.
Buffett is arguably the greatest investor to ever live, amassing a personal fortune nearing $100 billion.
The $200+ billion common stock portfolio he manages has numerous dividend growth stocks in it.
Fellow contributor Dave Van Knapp can teach you what this strategy is, why it’s so amazing, and how to successfully implement it.
He’s shared all of that in his Dividend Growth Investing Lessons.
Suffice to say, investing in wonderful companies will do wonder for your investment results.
Conversely, investing in poor companies will likely make you poorer.
Once you’re ready to put capital to work, make sure to check out my Undervalued Dividend Growth Stock of the Week series.
I take the time every Sunday to highlight a compelling long-term dividend growth stock investment opportunity.
These are high-quality dividend growth stocks that appear undervalued, based on a full analysis, risk assessment, and valuation. I even include opinions from professional equity analysts for balance and perspective.
So you don’t need a lot of capital to get started. You don’t even need a lot of capital to do well over the long run.
But why not shoot for extraordinary results?
If you can keep your lifestyle in check, save a lot more than the average person, and intelligently invest in great businesses that reward you with growing cash dividend payments, you could become extremely wealthy in a relatively short period of time.
I’d know. I did all of that. And I experienced the results I’ve shared with you.
It’s ultimately up to you to start improving your financial future, Jordan.
Regardless of your approach, one thing is always true.
The best time to start is today.
I wish you luck and success.
Jason Fieber
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