Ideas on how to become rich: The Dividends Issue, part 2
I wrote a short investment piece on dividends in my last article. Here you go if you're interested in what I've written earlier on the topic: The Dividends Issue.
The difference between theory and practice in investment is what I will be examining today. Let's look at a few simple reasons why a pure dividend investment strategy won't work - or more accurately might not work - in practice. If we can find stocks that give out high dividend regularly and can pay somehow a very low price for them, then sit back and let the dividend come in to provide income for further reinvestment, then this system would really work. Compounding would set in fairly rapidly. However, in practice in investment things don't work this way.
First, we have to consider that the price of the stock might be higher than expected already due to the fact that this company gives out high dividends, and people know this.
Second, it is highly unlikely that the stock in question will rise much further since it is a consistent dividend giver and not a growth company. Therefore, a pure dividend strategy is highly unlikely to work if one thinks one can make money on capital gains.
Third, dividends in Singapore and in many other countries are - at most - given out four times a year, and at the least, assuming they give out anything at all, once a year. And this dividend can be cut at any point on time a recession or financial crisis hits, mind you. Thus, a pure dividend investment strategy can help you become rich only when you're already rich. For those on the way there, a mixed investment strategy is more useful, I'd say.
Thanks for reading and cheers!
Short notice:
I myself don't like gambling or speculating - I like investing. However, I might consider writing about ways people have come up with to try to make money via gambling since there is a recent craze at MBS (Marina Bay Sands) Singapore where the casinos are. Even a group of Malaysian teachers in early 2011 went to the casino instead of taking care of their charges! What a craze. Is there or is there not a system to defeat the casino and make lots of money? We might find out in a future post! Thanks for reading and cheers.
Ideas on how to become rich!
