Before I sat down to write this post, if you asked me whether or not I was a Rod Stewart fan, I probably would have said no. Even worse then that, I did not know any of his songs…At least i thought i didn’t.  To some people, that will not be surprising, in fact, I have been known to mix up song titles and song lyrics so much that my wife and close friends like to joke about it. But while I was searching  google for the author of a particular quote I came across this playlist from “Rod the Mod”. Not only did I know more songs than i thought, but I am now a fully converted Rod Stewart Fan

 

Ok the title insinuates that I am going to be talking about Dividends not about some 70+ year old rocker. So what gives?  Well if you are a fan of Rod, I am sure that you are aware of his song “Oh la la”.  It is a catchy little tune which gave us this golden line

“I wish That I knew what I know now, when I was younger”

This beautiful little one liner, could be used by any person for any number of things. Sometimes i can agree that it is better to learn through life experiences, but your financial health is something that should be taught and not something you have to learn by experience because for some people, that could be too late.

I want to do a little exercise and ask you some questions.

  1. Do you agree that money can’t buy you happiness?
  2. Do you believe that Your Health is your Wealth?
  3. Do you believe that to achieve wealth, you need to go to school, than go to college than get a good job?

 

Without painting everyone with the same brush, it is my experience, from those around me ,that you will answer yes to at least one, but more than likely all 3 questions. And that’s okay because that  is the way we are taught growing up (especially if you are  from Ireland) Well this may shock you, but I strongly Disagree with all three. let me break down why.

  1. Money can’t buy you happiness

Lets get one important fact out of the way, money in itself has no intrinsic value. It is worthless. That is a bold statement but if you have a minute give this article a read. If you don’t want to read that, just take a look at the below image which I borrowed from the same article. It is quite clear that the value of money is decreasing all the time.

Image courtesy of goldsilverworld.com

Still don’t believe me? Ok do you remember growing up and getting a dollar/euro/pound from your parents.I usually got it after mass on a Sunday.You go to the shop all excited to spend your new found  relative wealth on delicious treats. What do you buy?

My shopping list would look like this

  1. Mars Bar                              €0.26
  2. Packet of KP Meanies         €0.10
  3. 2 packets of Tayto Fives     €0.10
  4. Capri sun                             €0.20
  5. The rest in jellies                €0.34

Now if I gave my sons, the same amount of money today, they could not even buy a mars bar with 1 dollar. Now  I have over simplified this a bit, but I hope I have done enough to convince you that there is a possibility that money is worthless.

I know what your thinking, if money is worthless, how can it make you happy?

Once I came to terms that money had no intrinsic value, I realized that money is just a tool. Like a carpenters hammer. A carpenter cannot do his job properly without ever using a hammer just like the average person cannot lead the life they want without having some cash dollar. Think about it? If you were giving 20 million right now, would you still lead the exact same life (job, holidays, cars) that you have now. If you answer yes, than I applaud you, if you answer no, than i hope  you can see that money is a tool that will allow you to lead the life you want and in turn will make you happy.

  1. Your Health is your wealth

Health is important, and no amount of money in the world can ever change that. But remember what I said about legal tender being a tool.

Right now, how good is your Health system?

In Ireland, A first world country, we do not have enough beds to meet demand, The staff are over worked and underpaid and there are people dying literally everyday due to inadequate services.Its quite remarkable really.

I know, I know this is very morbid, but being from Waterford city, this is something that will resonate with a lot of people and something I feel strongly about. Here is an example of why. Now think if you have no money worries and that you had an unlimited cash flow, do you think you would be offered the best chance of receiving expert medical care. The medical business, is just that, a business and they need to make money so they will choose those who pay their bills over those who rely on out good old government to help us out. There is a private hospital in Waterford, which charge an obscene amount of money for a bed for one night. The tragedy that I posted above may not have happened if they had access to this private hospital. I know the outcome may of been the same, but wealth is a tool to enable you to access the best services to maintain your health

 

  1. Do you believe that to achieve wealth, you need to go to school, than go to college than get a good job?

Wrong, Wrong, Wrong and Wrong. Okay you may have guessed that I think that this is complete BS. The way to wealth is not by towing the line. The way to wealth is pure, good old fashioned Math and a beautiful little magic trick called Compounding. I will maybe write a post on how and why this is so magical, so I will give you a taster by giving you a quote from Albert Einstein

“Compound interest is the eight wonder of the world. He who understands it, earns it. He who doesn’t, pays it”

 

So why did i choose dividend investing?

To receive a dividend, you must own a part of a company in the form of shares. As a shareholder, you will be entitled to a payment known as a dividend. In order to harvest wealth, it is important to decrease your dependency on salary income and earn money “while you sleep” and dividends is one method of earning a cash payment by owning a portion of a company

The Standard and Poor index is the most widely used gauge of large equities on U.S stock exchanges. To be included in this index a company must be publicly traded in the United States and report a market capitalization of $5.3 billion or greater. The dividend yield for the S&P 500 is calculated by finding the weighted average of each  listed company’s most recently reported full-year dividend, then dividing by the current share price.

Dividend Yield %=  (Reported full year Dividend / Current share price) x 100

Taking 2017 as an example. The share price was $2673.61 and the reported dividend  was $49.73 hence

Dividend Yield %=  (49.73 / 2673.61) x 100 = 1.86%

 

If you analyze the S&P 500 from 1960-2017, the dividends have grown on average 3.01% per year for the index. To put that into context, if you invested $1000 in 1960 you would have a annual dividend payment of $34.10. Without putting another dollar into your investment and assuming that you withdraw your annual dividends, in 2017 you would receive an annual dividend of $855. Furthermore, your initial $1000 investment would be worth $46,000. Does that sound a lot? If not, try the same calculations with a initial 10K investment instead of 1k.

This could be further enhanced, if instead of withdrawing the yearly dividend, it was reinvested into the index. The original $1000 investment would of bought 17 shares with an $34.10 dividend in 1960 and in 2017, the same investment would now have 93 shares with an annual dividend of over $4000 and the investment would be worth over $250k.

That is why I choose to include dividend investing into my portfolio. I find it quite refreshing. The learning curve is not steep and it a set and forget strategy. In fact I can manage my investment portfolio with only 20 minutes of my time each month. In a world where every one is racing and wants returns yesterday, This is not a get rich quick scheme, think of it as the tortoise in Aesop’s Fables in a race with the Hare. Yes the Hare has the ability to win the race quicker, but the fastest doesn’t always win the race.

While the world is racing around, trying to get rich quick, Sometimes it is good to take a slower approach and try look after your financial wealth at a slower pace. In the next couple of posts I will show you how I go about choosing a company to invest in and show some of the tools I use to make my life easier

By the way if anyone would like a copy of the dividend history from 1960 to date than drop me a mail and I will send them to  you.

 

 

 

Disclaimer –
The information in this website and the links provided are for general information only and should not be taken as constituting professional advice from the website owner
Derek English is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances.
Derek English is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.

 

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