One of the things I’ve wanted to do for a long time is start a dividend portfolio. I like the idea of building a dividend portfolio that can (eventually) provide me with a revenue stream and increase my income diversity.
However, one of the challenges to dividend investing is the fact that dividends build up slowly. You only receive a few cents per share, so it can be discouraging if you start out with a small amount of shares.
During the past year, though, I’ve been part of an investing challenge. Along with several other bloggers, I’m seeing what I can do with $1,000. I decided this was the perfect opportunity to get a start on my dividend investing portfolio — so my entire $1,000 went into dividend paying investments.
So far this year, my investments have resulted in $30.50 in dividends. While it’s not a ton, it’s still free money (that I used to buy more shares of dividend-paying investments). Now that I’ve got the ball rolling, I can see better potential — and I’m ready to take my investing up a notch.
Two Things to Know About Dividend Investing
Think in the Long Term
One of the reasons that people get discouraged with dividend investing is the fact that they usually have to start small. If you don’t have $100,000 to put in an account to buy a large number of shares, it’s hard to generate a decent income right away.
The first key to successful dividend investing is to view it as a long-term strategy. Start small, buying as many shares as you can, and then reinvest the dividends. Over time, you’ll have more shares, which means higher payouts and the ability to buy more shares. The cycle repeats itself.
You also need to be consistent when starting small. This means regularly investing when you can. Just as in other areas of investing, dollar cost averaging works for dividend investing — so continue to add to your portfolio. For my $1,000 challenge, I can’t add outside money, but as soon as the challenge is over, I’m going to make regular investments to help grow my dividend investment portfolio.
Because dividends are becoming so popular, many companies and brokerages are starting to add dividend reinvestment to the mix. Usually, companies that offer direct investing plans will allow you to have your dividends automatically reinvested without charging a transaction fee. Many brokerages have started doing this as well, allowing you to specify that dividends from dividend funds should be reinvested fee-free.
This can help you “set it and forget it” as you build your dividend investment portfolio for the long haul. Over time, the more you invest, and the more dividends you receive, the better success you’ll have. Then, when you’re ready to retire, you’ll have a bigger nest egg — and possibly another source of somewhat reliable income.
While it can be slow going to start, the fact of the matter is: over the long term, dividend investing can be a great way to build your portfolio and generate a little income.
Have you tried dividend investing? Any tips to share?
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