8 proven tips to become a millionaire trader and investor (dividend strategy inside)
As traders we all share a dream. We want to reach or increase our financial safety, independence and freedom. How much money we need for this is a very individual question and depends on our lifestyle, including our daily expenses, vacations and other needs.
You may dream of a great car, your own island in the Caribbean or a nice (early) retirement. But no matter which goal you have, money can help you achieve it or make your life more enjoyable or less worrisome. Our coaches aim at growing their accounts to $1 million. But how can you reach this goal as well?
You will need time and discipline. Then we have the right plan for you to fulfill your dream of financial freedom. Here are our 8 tips:
1. Live big (not)
A drink with friends at night or shall it be a spontaneous weekend trip? There is no limit to consumption today. You can spend money any time you want to.
Now more than ever, a successful financial future requires you to keep your consumption at bay. What is consumption? Any expense that doesn’t create a return on capital. Here are some examples:
You buy a house in order to live in it yourself. We consider this purchase consumption, because your house loses value as it ages. You’re not yielding anything from it except if the ground gains value and you can sell it at a higher price.
But why wouldn’t you then just buy the ground and rent out the house on it? You’ll receive rental income and earn money that way. In that moment you have made an investment. This example is rather pushing the point we want to make, but the facts remain.
An example from daily life is the after-work beer or the 7th pullover you’re buying on Amazon. You have to keep these expenses under control and manage them with discipline.
To create your own future successfully, you should be able to put some money aside every month to invest in your dividend stocks. We’ll show you how to do this in this article.
2. Going from self-employment to entrepreneurship
You’ve probably heard people say they are “self-employed”. Usually this comes with a lot of long, hard hours alone in the office. You’re working for yourself, all the time.
A self-employed person works for themselves and their income and has to bear the risk of being unable to work on their own. Let’s take this image and transfer it to the trading space. You are trading all day and earning an income that way. However, what happens when you are sick or on vacation? Depending on your trading style, you have to work all the time.
On the other hand, if you turn towards entrepreneurship, you develop your idea and let others run the day to day business so that you can develop new projects. Also here, let’s look at how this relates to the trading world. With a dividend strategy, you let your stocks work for you. The stocks generate regular income for you. You don’t have to be in front of your computer, your capital increases, also without you.
Imagine you need two hours each month to take care of your portfolio and reinvest money and manage your stocks. Let’s say you generate 300 euros, pounds or dollars each month through dividends (on average). So your hourly rate is 150 euros/pounds/dollars.
You can use the remaining time to work or pursue other projects that generate money for you. That way, your capital can grow sustainably.
3. Buy dividend aristocrats
So-called dividend aristocrats are companies which have been paying dividends for many years without interruption. In addition, they have increased their dividends steadily. Such dividend aristocrats are usually good places for investments.
A simple example: If you had bought McDonald’s in 2007 at 45 dollars per share, you’d have received 1.5 dollars in dividends that year. That’s the equivalent of 3.3 % interest. Let’s ignore the development of the stock price (which has gone up as well, but that’s not the point here). In 2016, McDonald’s has paid 3.6 dollars in dividends. That’s 8% interest on your 45 dollar investment.
McDonalds has increased its dividends even during the 2008 financial crisis. Additionally, a dividend strategy can be supported with income from the sale of options. That is called covered call writing and is also part of income strategies, just like dividend strategies.
4. Low volatility stocks
You should look for stocks that have shown low volatility over the past years. Buy stocks that run up steadily. This will help when combining the strategy with other, complementary ones.
Low volatility of a stock is also a psychological advantage because your capital is not affected so much by the price changes. You naturally want to avoid that your capital suffers from big price plunges during a weaker overall market. Your goal is of course to receive the dividend payments, but sometimes retail investors cannot handle when their stock goes up and down and then question their strategy. Stable stocks protect you from such frustrations.
5. Dividend increases during the last three years
Pay attention to stocks that have consistently paid higher dividends during the last three years. That’s a reliable signal for stable dividend payments. After all, you want to get paid for your investment.
You can check regularly if this continues to be true for the companies in your portfolio. You can, for example, take a look at recent payouts every six months.
If a stock does not fulfill this condition anymore, you can consider swapping them for another stock in your watchlist. You should of course also consider the price of the stock at that moment to avoid suffering from a price drop straight after buying the stock.
Good stocks rise in the long-run and have competitive moat, i.e. a business model that can hardly be touched by the competition. Over time, this can yield exponential results for you due to compound interest. So remember to always invest for the long-term when you’re pursuing a dividend strategy.
6. Trend stability
Next to low volatility, your stocks should also show a stable upward trend. After all, you don’t want weak stocks in your portfolio. If we assume that for strong stocks the trend will rather continue than to break, then we should invest into stocks that already show a stable, upward trend.
There are various ways to determine an upward trend. Moving averages and relative strength indicators for example. Important is that the trend is upward. You don’t want to bet on turnaround stories as part of a dividend strategy.
Last but not least, don’t get discouraged by a stock that has risen already by 100% over the last couple of years. Such stocks can continue to go up over the next couple of years. There are many evaluations on the topic of trends and trend following. We never know what the future might bring, but we can bring the odds in our favour through our stock selection.
7. Buying when others are fearful
You should regularly invest further in your portfolio stocks and reinvest your dividends. That way, you achieve an even higher compound interest effect. As mentioned in our first piece of advice at the beginning of the article, you should save and invest money every month.
You can reinvest that money together with your dividend income. Set regular intervals. For example, you could reinvest every three months. That way, you can benefit from the so-called cost-average effect since you buy more stocks for the same money if your stock has gone done and less stocks for the same amount of money if your stocks have gone up.
For this to work it is important that you also invest when others are fearful. That means to invest in times when the stock market is weak and your stocks are falling. That’s when you get the best discount prices for your investment.
8. Current candidates in the stock market for a dividend strategy
Before we list a few candidates we have to mention that this does not constitute a buying recommendation and you should make your own decision which stocks you want to invest in since it is you who bears the risk.
Here is a list of stock ideas that you could consider:
· 3M Co.
· Pepsico Inc.
· Axis Capital Holdings Ltd.
· Everes Re Group Ltd.
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This news was first published on Tradimo