Dear DTA,
My goal is to make money in a reasonable amount of time.
-Clive R.
We appreciate you writing in, Clive. We’re here to help. So let’s see if we can do that.
Your goal – making money – is one I think most people can identify with. Money, as they say, makes the world go ’round.
Another popular maxim we’re all familiar with is: money doesn’t grow on trees.
Or does it?
[ad#Google Adsense 336×280-IA]I actually invest in a way that allows money to more or less “grow on trees”.
And you can do this, too.
Stay with me for a second here.
Imagine if you could plant a $1,000 seed in your backyard.
Now imagine that seed one day grows into a nice-sized fruit tree, except the “fruit” it produces is money.
As the tree matures, the amount of “fruit” it can produce multiplies.
Well, that’s sort of how divided growth investing works.
You plant a “seed” (investment) and watch it bear “fruit” (dividends) over time. As times goes on, the “fruit” output exponentially increases.
I speak from experience.
Back in early 2010, I was worth a negative amount of money. My liabilities exceeded my assets. I was almost 28 years old.
But I turned it all around.
I started aggressively saving and investing.
The investment strategy I chose – after plenty of research – is dividend growth investing.
The result is a real-life, six-figure portfolio that generates a five-figure passive dividend income.
If you check that portfolio out, you’ll see over 100 different “seeds” I’ve planted over the years.
Seeds like Johnson & Johnson (JNJ), PepsiCo, Inc. (PEP), and Apple Inc. (AAPL).
Johnson & Johnson, for instance, is on pace to bear $332 in “fruit” this year via the dividends the company sends me. Last year, it was $315 in dividend “fruit”. You’ll notice an increase there, even though I didn’t do anything (I didn’t buy any more stock).
Well, that’s how dividend growth investing works.
Dividend growth investing involves buying and holding stock in high-quality companies that reward their shareholders with increasing dividends. These increasing dividends are themselves funded by the increasing profit the company generates.
After all, it doesn’t make sense to invest in a company that isn’t growing (making more money).
And if you do invest in a company by buying shares, you become a part-owner. As a part-owner, you deserve your rightful share of any profit the company generates. More profit means more dividends.
You can see more than 800 examples of dividend growth stocks by checking out David Fish’s Dividend Champions, Contenders, and Challengers list, which is a compilation of all US-listed stocks that have paid increasing dividends for at least the last five consecutive years.
While it’s an intuitive strategy at a high level, it’s also incredibly practical.
That’s because all that “fruit” your seeds generate over time can be plucked from the tree. You can then use that money to pay your bills, take a vacation, or do whatever else you’d like to do.
It’s completely passive. You don’t have to lift a finger for dividend income once the seed is planted.
So, in a way, money can indeed “grow on trees”.
Best of all, the tree stays intact when you don’t cut it down.
If you just collect the dividend income and allow those trees to keep producing fruit, the fruit should continue to grow in abundance over time.
The passive dividend income from my own portfolio started covering most of my core personal expenses in early 2016, rendering me essentially financially independent, which I talk about in my “blueprint” for early retirement.)
You can see it didn’t take long to go from less than $0 to well into the six figures. We’re talking about seven years here.
So if you’re looking for a reasonable amount of time, I think that’s pretty reasonable.
But it wasn’t easy.
I had to really alter my lifestyle in order to save as much as I could, which generated the capital I needed to plant those seeds.
This involved moving to a cheaper, older, and smaller place. I sold my car. I cut out every luxury from my life.
Of course, it was all worth it. Financial freedom is one of the greatest luxuries I know of, so it didn’t really bother me too much to get rid of other worldly luxuries.
If you lack the money to plant the seeds in the first place, you’ll never see the fruit.
So if you really want to make sure the time frame is reasonable, you’ll have to think about potentially being pretty aggressive with how much you save and invest from now until the time you’d like to start plucking the dividends.
Indeed, I planted about $1,000 or so at a time. The portfolio I now control was built with regular, smaller investments like that over the years. I invested anywhere from $1,000 to $2,000 whenever I could. As I became more proficient with earning and saving, and as my motivation and desire grew, I saved and invested more.
But it’s not like I was doing anything that anyone else can’t do.
My day job during this period was as a service advisor at a car dealership. We’re not talking a six-figure salary here. I started my journey making $40,000 per year. And before I quit my job, I was making about $60,000 per year.
But I hustled. I worked a second job. I saved and scrimped. I stayed motivated all the way through.
And now I can sit back and relax a little bit, knowing that my “trees” are producing generous “fruit” on my behalf, meaning I’m earning a five-figure annual income before I even think about working and making money. I have it “made in the shade”.
And you can too, Clive.
But you first need to round up that capital to plant some seeds, which may require some hard choices in terms of your lifestyle.
Once you’re ready to invest, we have plenty of incredible resources designed to help.
One fantastic example is fellow contributor Dave Van Knapp’s series of lessons on dividend growth investing, which allows even a novice investor to learn all about dividend growth investing.
In addition, I highlight an undervalued dividend growth stock every Sunday.
That’s part of a series where I provide an actionable long-term dividend growth investment idea every week. These are dividend growth stocks with solid fundamentals. And each featured stock appears to be trading at a good value at the time of publication.
There’s a great quote that’s attributed to Warren Buffett: “Someone is sitting in the shade today because someone planted a tree a long time ago.”
If you want to have it “made in the shade” one day, you need to start thinking about planting those seeds now.
You say you want to make money in a reasonable amount of time. This can be done for most people.
But the only reasonable time to start is today.
I wish you luck and success.
Jason Fieber
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Disclaimer: Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.