The Secret to Eternal Wealth
One simple strategy that ensures the money lasts forever after retirement
When it comes to strategies for investing your money, it can seem like everyone is shouting from the rooftops, yet no-one is making sense.
Which shares are best for you? What’s the best way of being smart yet keeping safe?
The wisdom of the moment suggests investing all your money in ETF’s, a relatively safe and easy way to invest. Using robo-investors and individualized systems such as the app ‘Robin Hood’, investing can be quickly and safely taken out of your hands.
But what if you’ve got a stronger appetite for an investment strategy? What if you want stronger returns and more control?
If you want to buy your own individual shares but need a strategy to implement, allow me to introduce you to the compounding dividend strategy.
Compounding Dividend Strategy
Dividends are a wonderful and powerful thing. They’re a payment made to investors by companies usually once or twice a year, but only some companies take part. (When buying a company’s shares you can always find out whether they pay dividends and how much).
Dividends are generally looked down upon by people who follow one of the many “growth-focused” strategies out there.
These people believe that a company that doesn’t pay dividends is going to exclusively use that money to grow their company. They believe that these companies will make smart purchases and put that cash to better use.
I personally believe that a company that isn’t worried about dividends is more likely to use that money when lining the pockets of their executives.
A company that pays dividends is one that’s concerned about generating the money necessary to make the payment. They carry out their business every day in a way that’s going to generate enough cash to pay me and everyone else who invested. This hustle is part of what’s driving its growth.
Proving themselves to us and increasing our dividends every year will drive their own growth, so there’s no need for me to invest in nonpaying so-called “growth companies”.
I don’t prescribe to companies that require me to have faith in their business practice. I have faith in cold hard cash, show me the cash and I’ll see your value.
Growth through compound interest
I believe that compound interest is the one true magic left in the world (since the wizard days of yore).
Compound interest is how a credit card can change from annoying to crippling, and it’s how a trickle of investments snowballs into a passive income that earns you a salary for life.
Shares that don’t pay dividends require you to sit on your hands and have faith. You only make money if the share price grows, and even then you only feel the profit by cashing out.
However, dividends are cash that is paid to you, with which you can do whatever you please. If you’re smart though, you’ll re-invest it.
When your investment strategy relies on dividends, your growth is constant. You’re using that money to buy more shares constantly, increasing the rate of growth.
When you use this cash to buy shares at a constant rate, these shares will also generate dividends that can, in turn, be spent buying shares. The larger pile grows faster and faster the longer you’re doing it.
Then one day, after enough time has passed, those dividend payments are enough to live on, so you spend it. Suddenly you don’t need to work anymore.
Spend the interest
The biggest investor secret out there is to spend the interest, never the principal. This means that truly smart people are living on the money generated by their invested money. What they never do it sell shares and live on the money gained from the sale. This is why their cash can last forever.
Some people think that once they retire, they have to sell their shares and stretch that money as long as they can. They aren’t stupid for thinking that, it’s a logical conclusion to reach. Saving money so that you can spend it is an easy process to understand. Saving money, then spending the profit that money generates is far tougher to fully understand and appreciate for someone that doesn’t come from big money (like most of us).
Your goal should be to eventually have shares that generate enough money to live on, once you’ve done that you can just leave the shares alone and let them continue to grow and earn.
Even if you decide to convert them into bonds as you grow older (safer) you need to make sure you’re also buying bonds that generate dividends.
Achieving an income through dividends and interest will take a lot of years to achieve, so the faster you get started, the better off you’ll be!
Remember, spend the interest – never ever the principle. That’s the secret to eternal wealth.