Jack Carter takes over to explain Why dividend stocks are more important now than ever before. — The Dividend Wealth Journal Team |
There has not been a more important time in recent history where folks needed some extra income and the ability to pull from their retirement while continuing to grow it.
In my opinion, the best way to generate income is with rock solid dividend stocks.
Because dividend stocks give you an incredibly rare combination: They are one of the few investments where you have the opportunity for capital growth (meaning the value of your investment actually grows and is worth more over time) as well as paying out income on a consistent basis.
Again, this is like the idea of real estate: If you buy a house for $500K and rent it out for $3k per month and the value of the house goes up, you now have a situation where you are getting income PLUS your base investment is growing in value.
But as I shared in the last chapter, real estate isn’t passive. Doing that requires immense amounts of work and has extra, hidden costs and all sorts of challenges.
One of those challenges is that it typically requires a significant amount of capital just to get started. Meanwhile, you could start with dividends with just a few hundred bucks!
And it’s truly passive. Again, it might be the only way I know of where you can get this unique benefit of potential growth and consistent income without actually doing anything.
Why does this matter so much?
Well, to put it bluntly: Millions of retirement accounts could be headed for destruction without this solution.
You see, the old school way of thinking was to build up your nest egg to a certain amount with a financial advisor – say $500k – and then live off the growth of the nest egg over time because the market consistently produces 5-7% even in a safer diversification of assets.
So the idea was that, as long as that kept growing, you could then live off the capital gains.
But sadly, that’s just not possible anymore.
According to researchers, the average retiree spends $5,049 a month… And that’s really just on the bare necessities. It’s not like the average retiree is paying for children anymore. That’s just to get by in today’s economy.
So even if you have $500,000 in the retirement account now…
And if you do hit that 6% growth you are supposed to get from your nest egg..
If you just withdraw the $5k a month needed for basic living, you’d be out of money in just 10 years. And we all know most retirees are living a lot more than 10 years past retirement!
If you have $250,000?
You’re out of money in 4 years! That’s why I think planning to live off just capital gains alone can be a recipe for disaster for so many people.
In today’s economy, it’s more important than ever to understand this.
Instead of pulling out of your nest egg, I recommend using it to create more cash that you can live off. And that’s the idea of a powerful dividend portfolio.
Think of it like this…
Imagine you have a goose that lays golden eggs (that’s your “account balance”).
Withdrawing from your account is like eating the goose that lays golden eggs because you’re hungry…
Rather than letting it continue to lay even MORE golden eggs in the future, you’re cutting its head off… Because you’re now dipping into the “account balance”… And when that shrinks, it stops producing the extra capital needed.
And when that happens, things get really tough.
But having a portfolio of the right dividend paying stocks can help ensure you never have to kill your golden goose.
Why?
Because you’re not dipping into the account at all. You are using the account to produce the income you want to live off. And that changes things dramatically.
Let’s just run the math and see what that would look like in your account…
Just from the basic numbers.
While the $500,000 account reliant on 6% capital gains alone goes broke in 10 years…
The $500,000 account with dividends reinvested continues to grow…
Even with the rising costs of living!
And that’s the entire goal of a rock solid dividend portfolio. It’s not about chasing some fad or making a quick buck.
It’s about reversing the trend so that you’re not melting your account when you retire, but instead are pulling income from it while it continues to grow.
This is something I talk about all the time because I have 7 children.
I don’t want to milk my finances down to $0 when I am older…
I want it to continue to grow so that I can leave an inheritance. And, in my opinion, a rock solid dividend portfolio is the best way to accomplish that.
Now more than ever!
And if you’re curious just how impactful this growth could be over time, hold onto your hat.
Because the scope of time really makes the difference with dividends mind boggling…
Just visualize a $10,000 investment in the S&P 500 since 1960 with me…
Without the dividend payments…Your account would have grown to $641,000: $10k to $641k is actually pretty darn good. It’s pretty amazing that the regular growth of the stock market has been that reliable for the last 60 years!
But for most people, $640k wouldn’t be enough to retire worry-free, right?
But during that SAME time period…With that SAME starting stake…
If you reinvested the dividends, your account would have grown to over $4,000,000:
That is a stunning difference!
Over 5X the return on the same underlying growth.
Which means dividends were the ONLY difference between not having enough to make it through retirement…
Or retiring in the TOP 1% of all U.S. Households!
And like I said…
You wouldn’t have had to pick up an extra side hustle, work night shifts or become a real estate expert to see that kind of life-changing impact over the last few decades.
There’s no extra legwork on your end to collect these dividends!
You, or anyone, would have been able to sit back and watch that massive compounding effect snowball over time.
And as long as a company doesn’t cut its dividend, you’re guaranteed cash!
Now, most people I talk to understand how impactful this is once I show it to them, but many of them think it’s too late to get started. They, of course, wish they had started in the 60’s and had the $4M+ now to work with.
But as someone much smarter than me once said: Every one of us would like to rewind the tape and make different investing decisions – including me (hello, buy a million Bitcoin at 1 penny a piece!)
But the reality is that starting this compounding process is the only thing many of us can do now.
And with the cost of everything higher than ever, I think the sooner you start making passive income and compound interest work for you, the better off you will be.
— Jack Carter
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