Want to invest in the stock market for dividends and cash flow? Learn from my personal mistakes (and triumphs too). In the world of investing, it's not only about what you do right. It's about avoiding mistakes too. Today, I'm excited to highlight five common mistakes that dividend growth investors should avoid:
(1) The Dreaded Yield Trap: A yield trap is a dividend stock with a very high, yet unsustainable, current yield. These stocks can often attract investors with the promise of a great dividend. However, they are too good to be true. It's important to avoid yield traps. And, focus on companies with sustainable, yet growing, dividends.
(2) Not Starting Now: Time is your greatest asset in the world of dividend investing. It's all about compound interest. In today's video, I tell the story of two investors. One invests $5,000 and has 30 years of investing ahead of them. One waits ten years and invests $10,000, with only 20 years of investing ahead of them. Both do really well, but guess what? They both end up in the same place. Wait 10 years, and you may have to invest twice as much! It's all about starting now.
(3) Getting Bored and Giving Up: Dividend growth investing is a super investing strategy. That said, it is not exciting like trading. Slow and steady. Building a large stream of dividend income takes years, decades even. It's easy to get bored, give up, and potentially cash out (or switch strategies). Don't do it!
(4) Not Controlling Your Budget: Dividend investing is a means to financial freedom. Meaning, passive income can cover one's living expenses, giving them complete flexibility in life. Amazing! That being said, financial freedom is quite unlikely if one's budget is out of control. If one spends 90% of their income and saves only 10%, it's going to be very difficult to one day live off dividend income. (That said 10% is certainly a great start, and a step in the right direction!) Learn why at least 30% savings is key for dividend investors.
(5) Following The Crowd: A big mistake in the world of dividends is following the crowd. Because this personal finance strategy requires persistence and dedication, one has to have conviction in their stock selections. One has to stand by their selections in good times and bad. When you follow the crowd, in my opinion, you will never have sufficient conviction in your portfolio. Choose your own stocks and stand by them!
Want to learn about even more investing mistakes (to avoid)? You may want to check out my other video about dividend investing mistakes:
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Disclaimer: I'm not a licensed investment advisor, and today's video is just for entertainment and fun. This video is NOT investment advice. Please talk to your licensed investment advisor before making any financial decisions.
