Wealth Building and Dividends

“Systems are the vehicles that are going to take you to your goals—your goals are simply the destination.” James Clear

“We don’t rise to the level of our goals; we fall to the level of our systems. Don’t share with me your goals; share with me your systems.” James Clear

Are you prepared for your financial future and to build wealth? There are many benefits of investing for the long term and to building wealth. Here is a simple and straightforward checklist to get started:.

Start early!
Investing starts with a plan
Investment plan starts with defining and identifying your financial goals.
Create a savings and investment plan based on your goals.
Two primary goals must be creating an emergency fund and building wealth for retirement
Develop good financial habits
Pay off high-interest debt first.
Participate in your company’s 401(k) plan and max out any employer match.
Understand your risk tolerance.
Understand investment fees and their impact on returns.
Research all investments thoroughly.
Check your investments regularly and maintain a diversified portfolio.
Avoid investment opportunities that sound too good to be true.

40% of stock market returns come from dividends

It’s interesting that most investors don’t know how powerful stocks that pay dividends are. Dividend stocks are stocks of companies which pay out a portion of their earnings to the shareholder in the form of dividends. Between January 1926 and December 2004, 41% of the S&P 500’s total return owed not to the price appreciation of the stocks in the index, but to the dividends its companies paid out.

An additional benefit is that, under the current tax laws, qualified dividends are taxed at lower rate instead of your standard income bracket rate which translates into more money in your pocket.

Investors know that the best dividend stocks aren’t those with a high yield, but rather are quality businesses that can grow over time and pass along profits to shareholders through the dividend, by repurchasing shares and reinvesting in the business.

Bottomline is that dividend-paying stocks have outperformed in the past and that they have a good chance of doing so in the future. The secret is to reinvest those dividends, and put the power of compounding to work in your portfolio.

To build wealth, investors need to account for a range of significant, real-world challenges, including:

Longevity
Inflation and rising costs
Fixed income vs. equity valuations
Low yields

With tens of billions of dollars trading hands every day on the New York Stock Exchange alone, it’s easy to lose sight that when purchasing a stock investors are effectively purchasing ownership interest in a business. Assume for a moment that you don’t get a quote every day for your shares in that business and that you can’t sell your ownership interest for several decades. Your focus would likely shift from price to value.

And the value of that business, whether publicly traded or privately held, is the present value of all future cash flows. After all, what is the point in owning a business – or any investment – if you’re never going to receive any cash from it? When a company generates positive free cash flow, it has several options; the company can hold cash in reserve, fund organic growth, make acquisitions, pay down debt, or return it to shareholders through dividends or stock buybacks.

Using dividends to pay your expenses and allow you to reinvest to get more income. You can achieve this by investing in excellent dividend-paying securities now and letting those dividends reinvest as you work towards your retirement.

References:

From Gratitude to Greatness: Brownlee Global's Path to a Purposeful Life

Guide and Educate Individuals How to Build Long-Term Wealth, Better Manage Their Money, and Achieve Financial Freedom

Like this:

Related