Dear DTA,

My goal is to be able to grow my investment for an early retirement. At the moment, I only have one stock. It’s time for me to diversify.

-Ivan G.

Great to hear from readers like yourself, Ivan. Thanks for writing.

Your two goals – early retirement and diversification – complement one another. I’d argue they go hand in hand.

That’s because you want an early retirement to be enjoyable and sustainable.

Well, it’d be hard to enjoy your time if you’re worrying about how one particular stock is doing.

And it might not be all that sustainable, as your lifestyle would be mostly or totally dependent upon the fortunes of one particular company.

So I propose the first thing you will want to do as you march toward your early retirement is to broadly diversify your investments.

I say this as someone who quit my day job at 32 years old and became financially independent one year later.

But because my basic personal expenses are essentially funded by passive investment income, I need to make sure that income is as safe, reliable, and diversified as possible.

And I also want to see it grow over time, at least in line with inflation to keep my purchasing power intact (but better if it’s growing faster than inflation).

This is where dividend growth investing comes in.

This strategy involves buying up shares in high-quality businesses that have lengthy track records of paying their shareholders rising dividend payments – which are funded by the growing profit these great companies are producing.

You can find more than 800 US-listed dividend growth stocks by perusing David Fish’s Dividend Champions, Contenders, and Challengers list – a compilation of incredible information on stocks that have raised their dividends each year for at least the last five consecutive years.

As you might imagine, dividend growth stocks are often some of the best stocks in the world – blue-chip stocks that build generational wealth and income.

Stocks like McDonald’s Corporation (MCD), Johnson & Johnson (JNJ), and Apple Inc. (AAPL) can all be found on Mr. Fish’s list – and all of them are fantastic businesses that are paying their shareholders regular, reliable, and growing dividends.

So I’ll tell you what I’ve done.

I lived well below my means in order to generate savings. And I took the savings – that excess capital – and invested into high-quality dividend growth stocks, building a diversified portfolio one stock at a time.

I recounted and laid out that entire process via my Early Retirement Blueprint – a real plan of action that almost anyone can follow to an early retirement.

The result of that planning, striving, saving, and investing is my FIRE Fund, a real-life and real-money dividend growth stock portfolio that generates the five-figure and growing passive dividend income I need to cover my basic bills in life.

While I rely on some of the world’s greatest companies to produce the profit and growing dividends I need to live off of, I’m still broadly diversified.

Why? 

Well, you never know. Anything can happen.

And I sleep much better at night knowing that even if one of the great companies I’m invested in were to get in major trouble that threatened their business model and/or dividends, I’ll be just fine.

See, the whole concept of an early retirement means you need to live off of investment income for decades.

You want to “bulletproof” your income as much as possible.

Well, investing across a wide swath of some of the best companies in the world is about the best possible way you can do that.

Plus, almost every stock in my portfolio is a dividend growth stock.

The very growth of the dividends means my passive income is growing organically – all by itself.

My purchasing power, options, and freedom are all growing. The potential lifestyle I can live is expanding.

And my financial independence is becoming more safe and sustainable all the time.

That said, there’s more to it than just randomly buying up stocks on Mr. Fish’s list – or any other list, for that matter.

You want to become familiar with how a business operates. You should analyze a company/stock before investing, looking at fundamentals, competitive advantages, risks, and valuation.

Fortunately, we’ve got you covered across the board.

Fellow contributor Dave Van Knapp put together a fantastic series of articles that go over almost everything related to the strategy of dividend growth investing, tackling what the strategy is, why it works so well, and even drilling down into buying and valuing stocks.

These are his Dividend Growth Investing Lessons.

And then if/when you find yourself finally ready to put capital to work and more broadly diversify your portfolio across many high-quality dividend growth stocks, I highlight, every Sunday, an Undervalued Dividend Growth Stock of the Week.

These are compelling long-term dividend growth stock investment ideas that I present to the community each week.

Every pick is first culled from Mr. Fish’s CCC list.

And then I go over the dividend metrics, business growth, balance sheet, profitability, competitive advantages, risks, and, perhaps most importantly, valuation.

These are some phenomenal tools to help you get started, Ivan.

Early retirement and diversifying your investments work together – you’ll want to work toward both simultaneously.

And the best time to start that process is 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.