Dear DTA,
Hi. I’m a sophomore in college. I recently started reading a lot about stocks, and now I’m pretty excited. Is there a certain amount of money I should be investing right now? Just trying to get ahead. Thanks.
-Oliver D.
Hi, Oliver.
Thanks for writing in. We really appreciate your readership.
Your introduction to investing at such a young age will surely be a boon for your long-term financial prospects.
I’m guessing you’re 20 years old.
That gives you a massive advantage over other investors getting a later start in life.
Used correctly, the power of compounding could radically alter the trajectory of your life.
And it doesn’t take long for this to happen, Oliver.
Check this out.
I was 27 years old when I first started investing.
Yeah, I got a super late start.
Making matters worse, I was actually in debt when I began to buy stocks.
I had student loan debt that I was still contending with.
By the way, if you have extra capital to invest and you’re simultaneously taking on debt to fund your education, I would strongly recommend to think about trying to graduate college without any debt. Student loan debt will weigh you down.
So I got started late.
But it’s better late than never.
And I made up for lost time by living well below my means and aggressively funneling all of my excess capital into stocks.
But not just any stocks.
I bought high-quality dividend growth stocks.
There are a lot of investment strategies out there, Oliver.
But I’ve found dividend growth investing to be the best long-term strategy of all, assuming your goal is to build significant wealth and passive income over time.
Fellow contributor Dave Van Knapp describes what this strategy is, why it’s so wonderful, and how to successfully execute it.
He does that via his Dividend Growth Investing Lessons.
Essentially, this strategy advocates buying and holding shares in world-class enterprises that pay reliable and rising cash dividends.
You can find more than 800 US-listed examples on the Dividend Champions, Contenders, and Challengers list.
These are some of the best businesses in the entire world.
Because they’re so great, they make a ton of money.
So much money, in fact, that they often can’t effectively reinvest all of it.
That leaves a lot of money to return to shareholders, who are the collective owners of these businesses.
That’s where the cash dividends come in.
As that profit rises, so do the dividend payments.
Imagine getting paid just to wake up.
Now imagine getting paid more money year in and year out.
That’s the life of a dividend growth investor!
Getting back to my experience, I used this strategy to go from an indebted 27-year-old to a financially independent and retired 33-year old.
Yeah. Seriously.
As I lay out in my Early Retirement Blueprint, I was able to retire in just six years.
I now control the FIRE Fund.
That’s my real-money dividend growth stock portfolio.
It generates the five-figure passive dividend income I live off of.
You’re way younger than I was when I started, Oliver.
I’m not sure if you have any designs on retiring early.
But it’s not outside the realm of possibility that you could retire by 30 years old.
That’s the incredible power of dividend growth investing.
Now, you asked how much you should be investing.
I’m going to reword a famous tongue-in-cheek adage.
Invest early and invest often.
Aim to invest as much as you can, as often as you can.
Every dollar you can start compounding today could turn into many dollars down the road.
More wealth and passive income means more options in your life.
Keep in mind, though, that you should be very careful about the price you pay on any stock.
No matter the strategy you settle on, there is something that’s always true:
Price is what you pay, but value is what you get.
The valuation you accept at the time of your investment can have a big impact on the success and performance of that investment.
I do my best to point out “good deals” in the market with my Undervalued Dividend Growth Stock of the Week series.
I publish a new article every Sunday, highlighting a high-quality dividend growth stock that appears to be undervalued at the time of publication.
These stocks go through a comprehensive analysis and valuation process before they’re presented.
Your age is a gift, Oliver.
Don’t let it go to waste.
Pick the long-term investment strategy that makes the most sense to you. Stick with it through thick and thin. Invest early and invest often.
And get started 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.