How to Get Started with Dividend Investing
*Note: No copyright infringement intended

I have mentioned a few times this past year about the benefits of dividend investing. They can be amazing in helping stabilize overall gains in a down year like we just had in 2020; they can also be great to help add an extra 3-5% in growth in a booming market. Honestly, I have an entire account tailored towards dividend investing, and it has done well even with the 2020 recession. After doing enough research on each company and their history and track record of increasing dividends, I was able to reinvest the dividends at a lower price which means I get a larger portion of a share. Dividend investing has become very popular through large YouTube influencers like Graham Stephan and Andrew Jikh. However, there is a large issue with dividend investing.

Mindset. The dividend yield can be extremely misleading in some cases. This can cause investors to invest with the idea that they would receive a 10%+ dividend over the year, only to see that number be offset by the stock price plummeting. The dividend yield can be misleading if the stock price has plummeted by 30%+. For example, during the 2020 recession, Exxon Mobile’s shares dropped by 50%+. This caused their dividend yield, which they held steady throughout the recession, to be 10%. Now, during more regular times with a better economy, they are paying closer to 5%.

Solely focusing on dividend paying companies can lead to a ton of missed opportunities. Take it from personal experience that I have gone through. An example? How about turning down Tesla when the video of Elon Musk smoking hit the internet, sending Tesla shares down to $180? Hindsight is always 2020, but my sole reason for not investing in Tesla was because my one account I had was solely for dividend investing and since Tesla did not pay dividends, I missed out on such a cheap price.

Best Solution to This Problem

I now have multiple brokerage accounts where I am able to invest for different purposes. I have a ROTH IRA and a couple regular taxable accounts. I use my ROTH IRA for investments where I can take advantage of the tax advantages. If you want to learn more about my mentality on a ROTH IRA, check it out here. My other individual accounts are tailored for growth stocks. These growth stocks are not dividend paying stocks (or if they are, pay out minuscule amounts) and thus I will not be taxed until I realize my gains and take profits.

By having different accounts for different reasons, I am able to both invest in the different types of investments and take advantage of any tax advantages available and consolidate my investments to make organization easier for me. Hopefully this helps you if you currently invest in dividend paying companies or want to sometime in the future. If you have any questions, comment them below and I will do my best to respond to them. But until next time…

We appreciate y’all for letting us be a part of your Break Time.

Checking out, Kenny

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M1 Finance

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