Dividend Investing: Have Fun Investing to Get Even More from Your Portfolio by Ben Reynolds, Sure Dividend
This article is a guest contribution written by David Bressler of Elephant’s Paycheck.
David has been having fun investing for over 30 years. Professionally, David uses his flair for connecting to audiences through stories to help them understand complex technology in a way that matters to them.
It wasn’t until he got married in 2011 that he realized people need reassurance about their investing strategies as much as they need answers about what to do. Unable to find a book written for people without an interest in finance, he wrote it himself with the same easy to read and authentic style that has made him successful in his technology career. Click here to lean more about David’s book: The Elephant in the Room has a Paycheck.
Electron Capital Partners' flagship Electron Global Fund returned 5.1% in the first quarter of 2021, outperforming its benchmark, the MSCI World Utilities Index by 5.2%. Q1 2021 hedge fund letters, conferences and more According to a copy of the fund's first-quarter letter to investors, the average net exposure during the quarter was 43.0%. At the Read More
The 8 Rules of Dividend Investing helps you understand what to buy, when to sell, and the importance of diversification. I like to think of these as the tactical elements of investing.
What about the human element of investing?
How do we get motivated to start or stick with saving and investing?
We know ‘it’s good for us’ is not an answer.
We know it’s good to eat healthy, not stress out, stop smoking…
Knowing is simply not enough for some (in fact, I suspect it’s not enough for most). To have a real impact on people who wouldn’t otherwise get started there has to be a different answer than what we hear all from all the traditional sources of financial information.
Can we make a dividend growth strategy fun?
I mean fun all the time. It’s certainly fun when we get our dividends, and even more fun to reinvest them. It’s amazing when we get our dividend raises. In between those times it can be a real drag.
Have you ever had a few months where you just helplessly watch your portfolio balance get lower? I know I have.
Have you ever had to explain to your spouse why you keep adding money to your portfolio, especially when adding money to the portfolio doesn’t stop the end-of-the-month balance from being lower than the beginning? I know my wife asks if we should “just sell until the market is ready to go back up”. I suspect some of your spouses might not be so different from mine.
You Are What You Measure
Like the 8 Rules of Dividend Investing, I have a few metrics that I use to keep people motivated, have fun, and yes, even communicate better with their spouse about money.
The challenge with only tracking the overall portfolio value is market volatility. The market will go up and down. That’s the way it works. It means your portfolio will go up and down, regardless of how good or bad your investments are doing. When you look at your portfolio value it can make you queasy. It certainly doesn’t support healthy financial habit formation.
The trick to building strong habits is to have the reward reinforce the habit.
If you save money, but have less, that’s not very rewarding. Our brains aren’t wired to keep up that sort of habit, and so it’s harder than it could be.
However, we can measure different things. Things that go up unless we’ve made a bad decision. In the case of Dividend Aristocrats the thing that usually goes up is the dividend.
I start by tracking the total annual dividend amount, what I call the Paycheck.
Once you track the Paycheck, you can track the Projected Raise you’ll get from annual dividend increases, dividend reinvestments, and new money added to your portfolio. You’ll find that, when reinvesting dividends, you can get projected raises of 10-15%… every year.
I wonder how many people reading this article are getting raises every year, let alone raises of 10% or more?
It’s really motivating to see the Paycheck Growth over time. You can see in a sample portfolio I track, about 3 1/2 years in the raise is over 50%. What you’re measuring here is the consistency of your investing strategy over time.
Why limit yourself to portfolio value as the metric to track your investing success? Especially if your objective is to invest for dividend income, it makes a lot more sense to have success metrics based on the dividend income you’re receiving.
Change your perspective, change your experience
Raises are fun, and it’s motivating when you see metrics moving in the right direction a very large part of the time. Use these motivational tips to gain perspective to get you started, keep you going, and keep you and your spouse on the same page.
A Final Thought
Rule #8 says: “90% of the benefits of diversification come from owning just 12 to 18 stocks”.
What if you selected your 12 or so stocks based on when they paid and raised their dividends (in addition to the more traditional aspects in Rules 1-5)?
You could make sure that your raises from reinvestments happened at very short intervals, and get a dividend increase almost every month. With 12 companies in your portfolio, that’s roughly 4 raises a month.
When you do this you are making sure that you’re having fun and staying motivated. The value of doing so is truly underestimated.
There are times when investing is going to be hard. It’s impossible not to look at the portfolio value – believe me, I’ve tried. It happened this year – had a great first 7 months or so – then August and September took away almost all the year’s gains. But, my Paycheck had increased and I was still getting raises all the time. I was able to hang in there.
You will too.