What Is Dividend Investing?

April 4, 2023

This popular investing strategy has been talked about quite a bit. Why is it so popular? Should you be adding this investment strategy into your portfolio? In this highlight, Brian and Bo dive into dividend investing and discuss what you should know about it.

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Factor investing, let’s talk about another one. I think that is wildly popular. Even as we were talking about this, some of the people in the live chat were saying, “Man, I hope they mention this one,” “I hope they talk about this one,” “I hope they say something about this one.” And this is one again if you are out there on the interwebs, you’ve seen people touting this. It’s dividend investing, but give them the definition of dividend investing, then I want to kind of give a little context or something I find interesting.

Yeah, so dividend investors choose to invest primarily in stocks or funds that return cash or pay cash, known as dividends, back to shareholders. So, they’re looking for holdings that will return cash or capital back to them on some periodic basis through time. I think it’s interesting because I see how we fall into this is that dividend investing is kind of fun in the fact that it is a positive action. Meaning, a company is giving you money. And then, if you’re a lot of dividend investing, you can either reinvest it or you can just keep it in cash. You typically somebody who’s closer to retirement will probably keep it in cash and use that as kind of an income source to cover their expenses. But a younger person a lot of times, you see them reinvesting and they get so excited because it does feel good this company paid you money. You bought more shares so you’ve got the positive action of buying more and growing. You’ve also got the action that you receive something and there’s this implied contract that that’s got to be a good thing because you got more than you had before. But guys, I got to tell you this is not the rainbows and unicorns that a lot of people are playing especially if you’re a young person. And we kind of want to walk you through the details of this so you can understand how this could still be a valuable tool in your portfolio design but don’t lose the plot. Yeah, you just said it the brochure for dividend investing is so exciting. I can get capital now, maybe the company is going to increase it, maybe because I’m buying dividend-paying companies or holdings, it’s gonna be a little bit less volatile, it’s going to be a little bit less risky. The problem that we find though with dividend investing in our opinion is that folks who are so focused on that we worry that perhaps they miss the forest for the trees. They have a hard time seeing the big picture because they’re so focused on the small picture.

The content team did a fantastic job while Brian, they found this tweet that I thought was just wonderful. I thought it was satire. I did not take this serious. Y’all claim that this is serious, but I thought it was satire. So really quick, I want team to create a poll and I want you to do an option A, option B. Do it real fast, Daniel. I’m going to talk slowly so you get it going. So here’s what Side Hustle King lays out: “Would you rather get paid a million dollars right now or fifty dollars every month for the rest of your life?” That’s the question that we’re asking you. Let’s do a poll, see which one you would choose. This is what Side Hustle King said: “I’ll take option B. That is what passive income is. Find a way to make passive income and it will change your life.”

Well, because it feels good getting money every month, it feels like that’s great. But I mean, am I supposed to talk about it? Because when I saw this, I was like, “This is not real. There’s no way this is real. You don’t think there are people so…so in case study, like we went on the street and we started to ask people, ‘Hey, I’m gonna give you a choice: a million dollars today or fifty dollars every month for the rest of your life.’ And they’re like, ‘Oh.’ And what’s funny is the young people, right? They’re like, ‘Oh, I’m 21 years old and I’m gonna live until I’m 100. Surely, the fifty dollars, right?’ Like that. Again, it’s this idea of thinking about that they’re missing the forest by focusing on the trees. Now, let’s just go ahead and blow this up because this is something that I immediately, when I was looking at this, I was like, the reason I think this is satire is right now we know you could easily get four percent on your cash. Four percent on a million bucks, you get about 40 grand a year. 40 grand divided by 12, we know that’s gonna be well over three thousand dollars a month. So if you’re doing that, fifty dollars a month is only six hundred dollars a year. I mean, we blow past this in just a week or two. So it’s, um, it’s one of those things where, and it’s not fair to group dividend investing into this tweet, but it is one of those things where I think it is people, young people especially, do I want to make sure you’re not taking the positive behavior of receiving something and then reinvesting it as the absolute and you’re missing the plot of how do you build long-term wealth, you know, get wealthy and then stay wealthy in the strategies that will support that in the long term.

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