August 31st, 2012
How the Rich Got Wealthy and How You Can Join Them
I promised you not only information on dividend paying companies but also, occasionally at least, a personal rant, provocative content and contrarian views . . . well herego.
You may be surprised to hear that many people in the UK lack basic knowledge about saving, investing and retirement. Frankly, I am not that surprised.
When was the last time you explained to your 13 year old son or daughter what a dividend is, how it can grow into a fortune, or, what a preference share is? For some reason, people in the UK do not discuss 'money matters' with their kids in any major detail. We have decided to do something about this!
But, first, the parents need some assistance . . .
We need to stop being ‘just’ wage slaves and start taking a more proactive approach. We need to get our money working for us
through intelligent - albeit low-risk - investment strategies. We need to realise that the majority of wealth is created from investment income rather than savings or employment income.
We need to recognise that having an increasing number of different types of passive incomes, in addition to a salary,
can set us up for life. We need to appreciate that there are many
sources from which passive income can be earned, all with their different risk and return profiles but rarely requiring active
We need to understand that when we buy shares that are 'highly' valued our future returns are likely to be depressed. That, instead, to maximise our returns - long term - we should only invest in high quality dividend paying shares when they are historically undervalued.
Ultimately, it is about understanding the philosophies and investment strategies that have helped the rich become wealthy.
I am happy to announce that we have just released A Little Savvy Report on 10 Secrets of Wealth Creation – How the Rich got Wealthy & How You can Join Them on Kindle, Kobo and via PDF, at: Little Savvy Reports.
How to Create Long-Term Wealth?
The financial climate has changed
Things are not the same as they once were when making and saving money. The way we used to plan for retirement is an entirely different story now.
Changes in the rate of inflation measures will see state pension benefits deteriorate in the long term. During the last ten years or so, company pension plan contributions and benefits have deteriorated dramatically, while salary increases have become things of the past or are rather insignificant.
Many employers have reduced retirement security by freezing or abolishing 'gold-plated' final salary pension schemes and replaced them with 'inferior' pension schemes and reduced company contributions. Strapped government provide us with fewer services, and are taking more from us in taxes and fees while salaries and state pensions do not keep up with real inflation, increasingly hitting our purchasing power.
And while at one time, we might have benefited from real – positive – interest rates, in today's environment of low interest savings accounts, this is simply not the case anymore.
Given the fact that we are likely to live longer, it is in our best interests not only to have a plan to allow us to live comfortably, but to have a smart and effective plan.
We should no longer be relying on the false sense of security that inflation rates are relatively low (so, it doesn’t really matter), or believing that putting our money in the bank earning no real return is the safest thing to do.
A Different Investment Strategy
During our lives, we will endure a number of economic and financial cycles – think market booms, bubbles and busts – from which we can benefit.
Every boom has historically been followed by a correction - even after every 'collapse' - the good times have eventually returned to reward patient, long-term investors.
Any substantial falls in the stock market, such as those seen in the early years of the millennium or the continuing violent market swings seen since the summer of 2007, can often provide great opportunities for astute investors.
Returns from owning high quality dividend paying shares are generated not by earnings and dividends alone, but by the share prices at which they are initially purchased.
Learning when to buy solid, but temporarily, historically undervalued, high quality dividend paying companies, for the long-term – think 25+ years – is the single low-risk investment opportunity that is going to substantially increase our personal wealth, and the wealth of our children and grandchildren.
With the right tools, acumen and desire it is possible for any of us to create lasting wealth by purchasing shares at certain times and only from specifically chosen companies.
Realising how to do this, means no longer worrying about the highs and lows of inevitable market fluctuations, and about the direction things are going to turn next.
Knowing when a high quality dividend paying company is historically undervalued is invaluable when deciding to buy shares. As is the knowledge when they have become overvalued, warranting a possible sale. Buying shares when they are genuinely lowly priced, and selling them often years later, when they have become historically overvalued, while receiving increasing dividends in the interim, clearly maximises your total returns.
In this way, we can all build our own sustainable dividend income growth portfolio that will supplement income, and even sustain us during our retirement.
Growing passive income takes time and the longer we can leave it to grow, the larger our passive income and ultimately our wealth will be.
Truly great investors have known this all along - time and wealth creation go hand in hand.
Steven Dotsch is managing editor of Dividend Income Investor.com and author of A Little Savvy Report on The 10 Secrets of Wealth Creation - How the Rich Got Wealthy & How You Can Join Them, now available on the Kindle, Kobo and via PDF, at: Little Savvy Reports
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Don’t buy too high! Instead maximise your returns
While many of the companies listed above are solid dividend payers, unfortunately, many are also currently nowhere near their historical undervaluation levels when we would regard them as a good long term buy.
We are of the opinion that buying dividend paying shares when they are priced too high will lead to long-term disappointing returns.
At the other hand, selling solid dividend payers in a ‘panic’, when the overall stock market is (temporarily) in a down trend, will generally also disappoint your long-term returns.
Instead, why not join the Dividend Income Investor.com community in order for us to show you how to make better informed long term buy and sell decisions.
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