It started out as an experiment. It wound up being one of the greatest investment discoveries we've ever found.
More than a decade ago, I decided to build a portfolio of dividend stocks that would pay out more than 30 dividend checks a month -- one for every day of the year.
I call this method of investing my "Daily Paycheck" strategy. Simply put, by creating a portfolio of high-yielding dividend stocks that pay distributions regularly and have a history of raising their payouts, I've successfully built an income machine that pays me each and every day.
The best part is you can do the same.
And you don't need to invest a fortune, either. My results are fully scalable. So whether you have $1,000,000 to invest or $10,000, you can still earn a steady income stream using this strategy.
Now, admittedly, there's another step to my strategy that has helped me accelerate my income stream these past few years, and I would be doing you a disservice if I didn't share it with you.
See, while it's tempting to take the cash that my portfolio is generating (who wouldn't want an extra $1,353 per month in the bank), I've found I can earn even more money by simply reinvesting my dividends. By using my dividends to purchase more shares, compounding takes over. As a result, my next payment will be larger, which then buys more shares, and so on.
Consider two income investors, both of whom start a Daily Paycheck portfolio with just $20,000. One of those investors chooses to take the cash and spend it as he pleases. The other decides he wants to reinvest his dividends.
Assuming they both earn a 7% yield, after 10 years the investor who reinvested his dividends is generating $2,754 in annual income -- nearly double the amount earned with no reinvestment.
And if the holdings happened to boost their dividends by just 5% annually -- something even giant blue chip AT&T (NYSE: T) has been able to beat -- the portfolio earns 278.5% more income when compared to the investor who didn't reinvest. In fact, the investor who reinvests could be generating an effective yield of 26.5% based on his initial $20,000 investment.
If you have even a little bit more time on your investment horizon (or more money to invest, or additional dollars to invest each year), then the numbers only get better. And keep in mind that these are conservative estimates. They also don't include one penny of capital appreciation.
Of course, I understand if you want your money now and you choose not to reinvest your dividends.
But by not reinvesting your dividends, you will sacrifice the benefit of compound growth. Even so, the average yield on my portfolio is still 6.3% -- more than three times the average yield of the S&P 500 -- and many times more than the average savings account...
Before I started investing in dividend payers, I was anxious about generating a portfolio that could support me once I retired. I'm no longer anxious. My personal portfolio is generating more and more income every month. And I know that when retirement comes, I can just flick off the dividend reinvestment switch and start living off the income.
That's the power of my Daily Paycheck strategy, and it's something I want every investor to experience. You just need to get started today.
- Create a retirement savings goal
- Design an investment plan to reach it.
- Get a professional money manager to continually monitor and rebalance your portfolio
Sound complicated? Don't stress. Vanguard's new robo advisor service can help you put all of this (and more!) on autopilot, all for an annual gross advisory fee of just 0.20%.