I had this dilemma when I was figuring out what I wanted to do with my ROTH IRA account. I opened this account sometime in 2006 and had no plan at all. I was just buying some ETFs with somewhat messy allocation and I truly had no clue what to expect from the portfolio. Was I looking at capital appreciation, growth, value or income? I had no idea.
To start investing I needed to find out what I wanted. All the time, every minute I was thinking how to increase my savings, how to boost my contributions into my investment accounts to make them growing at higher speed. And that was the moment I found what I wanted to do with my ROTH IRA account.
I did a lot of researching on the Internet what would be the best strategy and approach which would satisfy my initial question to boost my portfolio. I realized, that dividend investing may be the point. Investing into dividend paying companies may bring some capital appreciation over time and deliver additional capital to reinvest and boost my portfolio. And that is my 2010 year goal to bring it up to levels where the portfolio will be speeding up as a snowball and growing faster and faster.
When researching how to invest in dividend paying stocks I came up with several good ideas. One I liked a lot was that over the long term dividend oriented portfolio outperforms all other investment strategies. And that is what I wanted.
So how to start?
The best way is to read and learn from others. I found several great blogs on the internet and I learned a lot from the investors who run them. So, here are my favorite blogs from which I have learned the most:
The Dividend Guy
For me: the most valuable blog I came across during my research and I learned the most. The most valuable information you may find on this blog is the investment strategy, which you can find in “My investment process”. I also value the holdings section, which can provide ideas for stocks and ETFs suitable for adding into a portfolio. For me this section provided a great link between holdings and valuation of stocks. Lastly, the greatest value is the weekly review of what’s happening in the dividend investing world. If you are a novice investor like me, read this blog.
A blog literally loaded with dividend stock analysis, tools and valuable advice on dividend investing. Originally, I came across this blog through The Dividend Guy. This blog is also a “must read” blog. As a newbie in dividend investing you may start with following the blog and its ideas and as the time goes you start being more proficient in selecting and analyzing stocks yourself and be more “do-it-yourself” directed. However to start, read this blog first on regular basis.
A blog of the dividend network. Another great source of information on dividend investing. All experienced dividend investors who I could find on the web are contributing on this blog, so you may find several different ideas from all these guys at one spot. Locate “Recent DIV-Net Core Member Posts” section and you will have them all at once. Read a lot. After about six months of reading I was able to gain some confidence on what I was doing with my ROTH IRA portfolio, so even today with such a scary market behavior I am confident enough to hold on the strategy, which I believe will save me money in the future.
The Dividend tree
Just go to categories and you find gems in there. Analysis, Asset allocation, Dividend increase, Investment process, When Markets Collide and many others worth of reading.
The last of the blogs I read on regular basis. You will find a lot of valuable analysis and advice on this blog such as One Rule To Improve Your Investing Performance (DIV) and a lot of investing ideas. It has a lot of educational value (for example go to “Process” category) which will help you to create a sustainable strategy.
If you are thinking about what strategy to go and considering dividend investing and reinvesting all dividends to create a snowball which will boost your savings the best start is by reading those blogs.
My contribution to the dividend investing would be a short advice of how to start with a small account (if you have only a few bucks a month to invest). The dividend guy writes about it in his post What Would You Invest in if you only had $1000. However I might have my recommendation here. If you have only $1000 to start with and then ca. $50 a month as subsequent contributions, you will be forced to watch your costs primarily. And here I am not talking about the costs implied by the fund (which is one important aspect too), but by your broker. Yes, you may set up an automatic payment, but that will tie your investment decisions and asset allocations. You won’t be able to allocate your money freely into under-allocated funds and reinvesting the dividends will be limited only to reinvesting into the same fund which generated the dividend (DRIP), which I personally do not favor.
To overcome this limitation a non transaction fee (NTF) fund may be your solution. With this fund(s) you can invest as little as one dollar and it will cost you nothing. There are some other limitations, such as you cannot sell such fund earlier than after 180 days redemption period otherwise a fee will be applied, these funds may be a bit more expensive (the expense ratio is higher) than the regular funds and you still will need some amount for an initial investment, however you may find funds with zero initial investments.
A regular investing of small amounts into these funds can help you save enough money, get a nice dividend and once you save, you can sell the fund and reallocate your money into ETFs or individual dividend paying stocks so the commissions won’t eat up your profits. At least I learned dividend investing this way.