Dear DTA,
Hi. I’m 23 years old. I want to build up a seven-figure portfolio from scratch. Just not exactly sure where or how to start. Any tips for a young guy like me? Thanks a lot.
-Decker A.
Hi, Decker.
Appreciate you writing in. Great to hear from you.
Kudos for starting so young.
That’s a fantastic decision on your part!
You have time on your side, my friend.
Starting out with investing at 23 years old is such an advantage.
Compounding is a powerful force.
The Rule of 72 illustrates this.
It’s a simple rule that tells you offhand how long it takes for an investment to double.
Dividing 72 by the annual rate of return gives you a rough estimate of how many years it will take for an initial investment to duplicate itself.
Let’s say you can get a 10% rate of return.
Well, dividing 72 by 10 gives you 7.2 years before that investment doubles.
Guess what?
The broader US stock market has grown at a nominal annual rate of ~10% over the long term.
Thus, stocks can end up doubling your money every seven years or so.
That’s the power of compounding, Derek.
But the more time you can give it, the more powerful it can possibly become for you.
That’s why your young age is a huge advantage for you.
I’ll give you a real-life example of how young age and stocks can mix together and form a great result.
I started investing just before turning 28 years old.
Not as young as you. But not terribly old.
I started out with nothing.
Actually, I was in debt at the time. So I started out with less than nothing.
However, I was determined to use compounding to dig my way out of my hole even faster.
By living below my means and intelligently investing my savings, I became financially independent at the age of 33.
I went from below broke to retired in just six years, as I describe in my Early Retirement Blueprint.
That’s how powerful compounding can be, when you harness it and use it correctly.
Now, “correctly” can mean different things to different people.
But I can tell you that I used the investment strategy of dividend growth investing to get to where I’m at.
This strategy allowed me to build my FIRE Fund.
That’s my real-money early retirement dividend growth stock portfolio.
The Fund generates the five-figure passive dividend income I live off of.
Dividend growth investing allowed me to build a portfolio well into the six figures, in six years.
You can certainly build a seven-figure portfolio using this strategy.
Especially with time on your side.
What’s this strategy all about?
Well, dividend growth investing advocates investing in world-class enterprises that pay their shareholders reliable and rising cash dividends.
These reliable and rising dividends are funded by reliable and rising profit.
A growing dividend is tangible proof of growing profit.
And it’s a great litmus test for business quality, while also being a phenomenal source of passive income.
Not just passive income, either. Growing passive income.
Reinvest growing dividends back into more dividend growth stocks, which also paying growing dividends.
Money makes more money.
It’s almost too good to be true.
But it is true.
Companies that pay growing dividends are all around you, Derek.
I’ll prove it.
The Dividend Champions, Contenders, and Challengers list contains data on more than 800 US-listed stocks that have raised their dividends each year for at least the last five consecutive years.
Perusing that list will reveal dozens of household names. You’d have to be living under a rock to have not heard of many of these companies.
Shouldn’t be a surprise, Derek.
After all, it takes a special kind of business to be able to regularly pay shareholders growing cash dividends.
These special companies eventually become household names, because they’re often providing the products and/or services that make the world go round.
I’d argue that dividend growth investing is harnessing and using compounding correctly.
This strategy could end up creating a massive amount of wealth and passive income for you.
Time is on your side.
But you must first educate yourself.
Fellow contributor Dave Van Knapp’s Dividend Growth Investing Lessons break down what this strategy is, why it’s so effective, and how to successfully execute it.
Make sure to read through the Lessons.
They are highly educational and actionable.
I’ll give you something else that’s actionable.
It’s my Undervalued Dividend Growth Stock of the Week series.
This is a weekly series where I present a high-quality dividend growth stock investment idea to the investment community.
These are well-researched ideas.
I only present stocks that have excellent fundamentals, durable competitive advantages, acceptable risks, and an attractive valuation.
Every single stock represents equity in a real-life business.
And every real-life business is a potential compounding machine that could start cranking out ever-more wealth and passive income for you, from the moment you invest.
But none of this happens unless you start, Derek.
The more time you can give compounding, the more powerful it can become.
Your young age is a huge advantage.
Don’t let it go to waste.
Start today.
I wish you luck and success.
Jason Fieber
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