Dividend stocks get a bad rep at times because of their “minuscule” returns, according to some. Some love it for the dividends (income) that come with the investment, as these companies tend to be blue chip stocks, or those that are well established within their niche. As someone who is on the younger end, I have heard from many that the time to take risks is now, when I do not have much other liabilities: no house payment, no car payment, no kids.
Growth stocks, including SPACS (Special Purpose Acquisition Companies), have been all the craze this past half decade (since I have started paying attention to stocks) and there is no doubt why. These big tech companies are completely expanded and have imbedded themselves into all facets of life. With the values of their company skyrocketing, there is no doubt that there is a large preference for these types of companies over the likes of blue chip stocks that tend to be more of the “slow” approach. For example, Tesla has been an astronomical run where their share price is currently sitting just above $600 (post-split) at the time of me writing this. Just last year in October of 2019, Tesla’s share price bottomed out under $200 (pre-split). This means that the company’s share prices has increased 15x in about 14 months. There are tons of companies who have astronomical increases in a day, but to do that over a timespan of 14 months shows just how great of a company Tesla is…in my opinion and many others. Had you missed out on including Tesla in your portfolio (like I did before eventually jumping in), you would have missed a great opportunity just because it did not pay dividends.
Dividend stocks are amazing if you want a more conservative approach to investing. Most dividend paying companies are blue chip and have established themselves with their customers. There are even categories for companies who have met certain timeframes of increasing their dividend payouts, dividend aristocrats and dividend kings. These are companies who have increased payouts for at least 25 years and 50 years, respectively, and are generally stable companies, but with less risk comes less rewards. These companies’ share prices appreciate at a very slow rate, and their dividends can either be subpar to great, depending which companies and in what sector you choose to invest in.
I have learned from a past mistake that both growth and dividend stocks are needed. Personally, I have both, but I hold multiple accounts for different purposes. I have a ROTH IRA which I tailored to take advantage of the tax advantages provided by the account. I also have a regular taxable account that focuses more on growth stocks that pay little to no dividends, and I will not be taxed much (as long as I do not sell).
I believe you do need both. Especially if you are younger, you can take more risk compared to those who are older and closer to retirement. By taking more risk, typically seen by those investing in growth stocks, you are able to increase your potential gain. I even look at a company like Apple, which has a market capitalization of over 2 trillion dollars, as a growth company. They pay a dividend of 0.66%, which is next to nothing and continues to focus more on their growth into various types of tech, which fits my personal criteria of being in my taxable account and not my tax advantaged account. Even if you are closer to retirement age, investing in certain growth stocks that are more established such as Apple can greatly benefit your portfolio. Hope this helps you in your journey of investing. But until next time…
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