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Information and strategies for investing in the share market
Dividend & Compounding Investing
6/19/2020 5:16:26 PM

Dividend and Compounding Investing

There are many different types of strategies you can use in share investing. 

Often the first image that comes to mind is sitting in front of a computer screen and watching numbers ticking over at a rapid pace hearing buy, sell, sell, buy. That tends to be trading and is a strategy best left until you are more skilled with shares and investing.

Some will think of mega share investor, Warren Buffett, whose strategy is based around value investing.  Analysing companies and looking for ones that are undervalued, have monopolies and exceptional prospects.

But, for the new to shares investor the simplest and less risky form of investing is buying dividend shares and using the compounding effect to accelerate returns and income.

 

What is dividend investing?

Dividends are the interest received from an company in exchange for holding their shares.  Companies will pay dividends once a year, twice a year, 3 times a year, 4 times a year or 12 times a year.  There are some companies who pay no dividend at all.  For dividend investing, look at companies that pay either 4 times a year or 12 times a year.

When companies pay dividends more frequently you can accelerate the yield return through reinvesting the dividends.  For example, one of my favourite shares has a fairly stable yield average around 7.17%.  It pays dividends on a monthly basis.  By reinvesting the dividend every month, this allows more shares to be bought each month and subsequently more dividends to be paid.  Calculating the yield over 12 months produces a return of 8.12%.

This strategy works particularly well when the dividend is paid on a monthly basis.

Quarterly dividend paying shares also offer higher returns but not as spectacular as monthly dividends.  With the above example the yield would be 7.4% based on the return for this particular share if paid quarterly rather than monthly.

Dividend investing is a simple strategy which with patience can provide exceptional returns.


 

Compounding Effect

Imagine a hockey stick.  It is flat on the ground level, curves gently, then goes almost straight up to the handle.  The hockey stick is a perfect example of what a compounding effect chart would look like.

When investing in shares the return is low to start with.  Then returns increase and create the gentle curve.  Finally, returns grow exponentially creating the handle effect.

Albert Einstein described compounding interest as the 8th wonder of the world.  He said “he who understands it, earns it. He who doesn’t, pays it” sadly very few have the patience to allow the compounding effect to grow to the exponential returns possible and earn financial wealth.


 

Combining dividend investing with the compounding effect and you build a powerful combination of strategies which can produce incredible results in the shortest possible time.

 

Overcoming the Fear
1/23/2020 3:41:32 PM

Overcoming the Fear

If you have never invested in stocks or shares taking that first step is very difficult.  Even harder is overcoming the fear of investing.

Within our training programs we cover 4 category investing – business, property, paper and cash.  Investing in shares is under the paper category and the one our members struggle with the most.  It’s not that they don’t understand shares.  It’s not that they haven’t done their research and chosen a share.  It’s not that they haven’t monitored the shares they’ve chosen and put them in a watch list. It isn’t the actual share investing that’s a problem.  They just can’t get over the fear of what happens if the price goes down. The fear is so great that some never progress any further with shares and only ever build the other 3 categories.

So, how do we help our clients overcome this fear?

We teach them about mindset and how mindset is 80% of investing whether it be business, property, shares or cash.

We warn them that the biggest hurdle they will have to overcome is fear.  The very first purchase they make will always be the most difficult one.

We teach them very simple strategies to start their portfolio and build their confidence.


We talk to them about their finance goals and their lifestyle goals and how share investing is a key part of achieving those goals.

You see, when it comes to overcoming fear there has to be a greater need that will encourage you to take the first step.  If you buy shares, or buy property, the very first purchase is always the most difficult to do.  The fear of the unknown, the fear of losing money, the fear of not getting the result you want is always there.

My business partner, Pete, is an amazing storyteller. He has an incredible story he tells about overcoming fear where the need for basic life essentials such as food and water is so desperate that the fear is overcome to ensure survival.

Clients have the choice to work with us or not.  If they work with us one of the categories we expect them to work in is the share market.  It is then essential for them to overcome the fear and do their first investment.  Amazingly, once that first share purchase is made they are soon building their portfolio, enjoying the learning process and thriving as a share investor.

If you really are interested in being a share investor, if you do want to build your wealth and dream lifestyle, can you overcome the fear of the first purchase?

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