Are you sick of living paycheck to paycheck? Want to make your money work for you instead of an employer? Investing in dividend stocks can be a great way to build up your retirement savings.
What if you want that money now? Some people say they can live off their dividends, but how are they doing it? Is it as easy as just buying some stocks and letting them sit there while you get paid every quarter or month? We answer all those questions so you can start investing yourself!
Invest in Companies That Pay Dividends
Investing in dividend-paying stocks is one of the easiest and most effective ways to build wealth. Dividend-paying companies are a great way to grow your wealth because they offer you the possibility of receiving regular payments from the company rather than relying on income from an outside source. This means that you'll have more cash flow each month, and if you reinvest those dividends back into the company's stock, you'll reap even more rewards over time!
Don't Change the Amount of Income You Live Off (At Least, Not Right Away)
This is the most important thing to remember when investing: Don't change your lifestyle or spending habits just because you're expecting a little extra money from dividends. You do not want to live paycheck-to-paycheck with your investment income alone!
Find the Right Mix of Stocks and Bonds
Begin by considering your personal risk tolerance and investment goals. Are you looking for growth potential or income? Do you want to preserve your capital or make it grow?
Once you determine what kind of investor you are (conservative, moderate or aggressive), look at the types of securities that fit those categories. For example, if you're looking for income-producing investments, consider stocks that pay dividends as well as bonds with high yields.
Re-Invest Your Dividends to Buy More Shares
Once you've received a dividend, you can choose to re-invest it. This is a good way to build your portfolio because it allows you to increase the amount of money in your account without putting in more cash—you're just trading one dollar for another. In addition, by re-investing dividends, you avoid paying taxes on them.
Take Your Principal Out When Necessary
The first rule of investing is that you should never lose money. If one of your holdings drops below what you paid for it (its purchase price), then it's time to sell and cut your losses rather than trying to "hold" onto the investment.
The key to living off dividend income is to invest in companies that pay dividends and grow those investments over time. This will allow a stable, growing income stream to help you save for retirement or cover your monthly expenses.
There are many ways to invest in these kinds of businesses, but we recommend using low-cost index funds or ETFs. They're simple and easy to understand, they avoid unnecessary risk (and therefore lower volatility), and they make it possible for investors like you and me to achieve the long-term growth needed over our lifetimes.