About the Talk
June 27, 2002 12:00 PM
260F Lor Chuan, Singapore260F Lor Chuan, Singapore
It is a common belief among most investment experts that the fastest way to financial growth is to invest in long-term ventures or to set a gestation period of at least 10 years for enhancing one’s prospects for bigger revenues instead of building a portfolio of short-term assets (for example, bonds and mutual funds). Hence, experienced leaders recommend diversifying investment portfolios with top-quality stocks that pay high dividends. This strategy has proven to be an efficient approach for investors to gain high long-term revenues that can sustain a stable retirement future for them.
Remember that this investment option is suitable only for investors who can have the patience and endurance to go for the long haul and choose to invest back dividends into the firms that offer payouts. For novice dividend investors, these primary advantages of investing in dividend-paying stocks on a long-term basis:
- Highly rewarding with a potential return of a maximum of 45% when you re-invest.
- You stand to gain a large number of shares, resulting to greater returns when you finally retire.
- Dividends provide a lower volatility than earning over time.
- Companies offering dividend stocks are most often well-managed, stable businesses in their particular areas and can, therefore, sustain their operations through unpredictable market conditions.
Nevertheless, be ready to apply many approaches of investing in dividend stocks in order to maximize your opportunities to gain big returns. Visit websites or consult experts to find out other essential investing tips any dividend-growth investor should implement to enhance your portfolio’s long-term viability.
Aim for the overall return
Investing in stocks that produce high revenues does not readily bring in your expected overall returns; the process all hinges on the results of capital growth and the actual dividend outcome. However, do not give up on dividend returns. The top dividend-producing stocks have the highest payout ratios, although it also means having less money to invest back with below-average dividend growth in the future. Hence, the best strategy would be to aim for the overall return rather than aiming for high yields; this is due to the fact that dividend growth depends heavily on the future outcome and not on the present performance.
Dividend growth has nothing to do with time; therefore, persevere as you implement your long-term strategies. Wait patiently as you hold on to your stocks over a long period of time, not panicking even when market values dip. Buying and selling on impulse could cost you more than you have to because of the burdensome expenses, such as brokerage fees and taxes; and, moreover, you lose the compounding benefits of potential returns from high-yielding dividends. Nevertheless, when stock prices decrease in times of recession, stocks offering high-quality dividends can sustain large payouts to investors. Remember that firms that consistently provide sizeable returns yearly will help you accumulate stable revenue on the long-term basis.
Well-known investment guru Jeremy Grantham was quoted by Reuters as saying this: “Be patient and keep your eyes on the light ahead…. Endure the pain in the meantime since an excellent investment will grow eventually. More often than not, individual stocks will recover; and all markets eventually do.”
Measure the risks involved
Besides persevering over the long-term, investors must also know when they have to invest and when to reduce any losses, the common qualities possessed by well-seasoned industry traders. FXCM recommends that traders must fully understand their trading personality, or, as in your situation, your investing personality. Ask yourself this: “Am I a risk-taker?” for it will show the type of investor personality you have to maintain and the best strategy to build wealth. As in all investment ventures, investing in dividend growth stocks likewise demands measuring risks and using your instincts often. All investors must learn to cut their losses and to let profits roll. Avoid the common human weakness to cling on to one’s losses and calculate early both the degree of risk and the potential returns to diminish or eliminate the effects of human emotions on your investment decisions.
Finally, it is important to stick to a well-designed strategy (meaning, the dividend income need you have set as your goal, investment approach to apply), as a dividend growth venture lends well to a systematic investment approach. From here on, you are all set to raise your investment portfolio to a higher level of performance by using these recommendations. All the best in your investment journey!