The following is a guest post by Millionaire Mob, a blog focused on ways to better your financial future through passive income, dividend investing and travel hacking.
As many of you know, I am a big fan of side hustles and have also talked a bit about dividend investing (including offering specifics on it from a friend of mine.)
Personally, I don’t think it’s a one-or-the-other decision, but I’ve always preferred a side hustle to dividend investing. So I was intrigued when the Millionaire Mob blogger offered an alternative view.
Let’s see what you think of his reasoning…
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What if I told you there is a way to make money without working and make progress towards your retirement goals? Does this sound too good to be true? Well, it isn’t. With dividend investing you position yourself to increase your income AND get closer to your retirement goals.
Why Dividend Investing is Right for You
Historically, dividend investing has been viewed as a risk-averse way for retired investors to be involved in the stock market. Not anymore…With the speed of news and information, dividend investing is by far the easiest, most-efficient way to make additional income from the stock market.
I’ve been enamored with the number of cool online tools associated with investing whether that be zero-commission brokerages, real-time information, automated trading, etc. The list goes on. But, in the case of dividend investing, this couldn’t be better suited for today’s generation of millennials.
Building a dividend growth portfolio should be fun, simple and stress free. If you set up your goals the right way from the start, you should have a new side hustle income…without the hustle part.
How Dividend Investing Beats a Side Hustle
A number of personal finance enthusiasts like myself, strive for income appreciation. You should too! However, there are several reasons why dividend investing will always take priority over side hustles.
1. The ability to kill two birds with one stone.
Dividend investing is the only way (that I know of) to both earn income AND get closer to your retirement goals. If you know of another way, I’d love to hear it in the comments.
When I reference your retirement goals, I mean that for every dollar contributed to your dividend portfolio you should be that much closer to retirement. Dividend stocks will have a residual component outside of your income, so you can convert to cash value in a very liquid manner.
2. Unlimited residual value potential.
To expand on my first point, as you invest in a stock you are investing in the future value of earnings at a price discounted today. Hopefully, if you set out a specific plan upfront, you will be in great shape to recognize significant earnings appreciation. Thus, leading to an increase in the stock price…and dividends, too.
Let’s look at one of my favorite examples. Nearly 70 years ago, Russ Gremel, of Chicago, invested $1,000 worth of stock in Walgreen’s. He had a simple mantra. People will always need medicine and women would always buy makeup. Russ went into it knowing that he would own the stock for a very long time.
In 2017, Russ turned 98 years old and realized that his Walgreen’s stock was now worth more than $2 million. He donated all of his stock to the Illinois Audubon Society. Be like Russ.
3. Side hustles take a lot of time…They aren’t called ‘hustles’ for nothing.
With dividend investing, you really do not need to devote significant amount of time to monitoring your portfolio. Back to my point of technology capabilities in the information age. We have real-time information coming directly to our hands via our iPhones at any given moment. There is limited need to go scouring the web.
With a side hustle I’ve seen countless individuals think they are on the brink of achieving greatness with their new side hustle but end up achieving marginal return for maximum effort. Don’t get me wrong. I love side hustles. I’ve even built a list of over 23 proven online jobs that you can use as side hustles. However, our time is precious. Spend it wisely. Just like your money.
Our single goal in achieving financial freedom is to increase our earnings on a per hour basis. And dividend investing has some of the best earnings per hour spent out there.
Based on my most recent dividend portfolio statement, I should earn $728 per year for doing absolutely nothing. I don’t even need to invest more money to earn that income. I like to invest in dividend growth stocks, which means I should see that income increase over time.
What happens if I continue to recycle my income AND contribute to the dividend portfolio over time?
4. Compound interest is the 8th wonder of the world.
Oh, hey compound interest. As Albert Einstein once said, “Compound interest is the eighth wonder of the world.”
Side hustles have limited ability to generate compound interest. Yes, you can increase your clients or sell more products over time. As an established business, you can make the argument that you can reinvest that profit into your own business and generate amazing compound interest. Holding that aside, dividend growth investing with reinvestment is the single best way to maximize your total return over the long-term.
5. A side hustle can go away.
If you are going to retire early, or for a matter of fact, just retire in general, you will need additional income beyond what is being inherently generated from your retirement accounts — even more so if you’d like to retire early. A side hustle should make up a substantial amount of your post-early retirement income, but it can’t be the only income. You must diversify yourself with income that will go on forever. Dividends can do that.
I like to think of my retirement accounts as ‘slush funds.’ They are true assets, but I can’t rely only on them. I must build my income and assets now with the utmost urgency possible.
Why Dividend Investing is Suitable for Anyone
Dividend growth investing can be done by anyone. In fact, you may be a lot better at it than you think. I’m a firm believer that investors that keep their strategy the simplest will eventually win the race.
Here are a few pointers I learned during my days as an investor, investment banker and finance monkey:
1. Stick with what you know.
Why would you invest in the next dog walking app when you can’t get enough Coca-Cola?
2. Invest in businesses you understand.
If you don’t know how it makes money, it’s not worth being in your portfolio.
3. Avoid the herd.
Just because everyone loves Netflix doesn’t mean you need to invest in it.
4. If it’s too good to be true, it probably is.
Someone promising that a stock is guaranteed to return 123%? Or, the next cryptocurrency is about to take off? Pass on it.
5. Do the opposite of financial pundits on TV.
Remember people on TV are often not inclined to give the best advice.
6. Only you know your risk tolerance and your investment comforts.
Stick with your gut. Do your own homework. You will end up in great shape.
I love investing, so dividend investing gives me another hobby. It also helps me achieve a number of goals without being a significant time suck.
To build your first (and only) dividend portfolio, find 20-30 stocks that you’d like to invest in. Scale into your investments over time. You do not need to be invested in all 25 stocks from the get go.
Next, set aside money to automatically be contributed to your portfolio and continue to reinvest all income and contributions into your portfolio — preferably on small dips in the share price. Dividend growth investing is a marathon and not a sprint. Be patient and have a plan.
Finally, go out and enjoy your life. Learn something new. Travel the world. There’s a lot to learn and a lot to explore.
Are you ready to start your dividend journey? Do you have any questions that I can help you with as you begin investing in dividend stocks? Let me know in the comments below. I’d love to hear from you!
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Comments
livelovelaugh saysI think the most attractive about dividend investing during retirement is the potential to pay zero on tax and still live comfortably.
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- Xrayvsn says
I am a big fan of all types of passive income streams.
Dividends are definitely nice way to achieve passive income however my favorite method is investing in passive real estate opportunities.
As I am an accredited investor I have access to private syndication and invest in multifamily apartments.
The thing I like about this is there are a lot of great tax advantages with real estate and their is typically a higher yield than the same amount of money going to a dividend stock.
This gives me the potential to have a larger passive income stream so I don’t have to consume capital as much when I need money later in retirement
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- ET says
A little late to the party here…but when you say passive RE opportunities, are you referring to REITs? Anything else? Thanks!
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- Apex says
He actually described what he meant. It is not a REIT. He is becoming a money only partner in multi-family apartment deals offered through syndication to accredited investors.
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- Accidental FIRE says
I got to financial independence by being an index fund guy and am more than fully FI. I’ve thought of possibly doing some dividend stocks but my history in picking individual stocks is, let’s say, not good. My main worry is overall stock depreciation and loss. I might try it with some play money, thanks for the post.
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- DaveS says
I’m sure most of us benefit from dividends even in most index funds. S&P 500 stocks yield dividends. You are doing it now. 🙂
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- Mike - Budget Kitty says
I like dividend stocks and at one point I started buying a number of Dividend Aristocrats with the idea of building up a portfolio of stocks that paid an ever-growing amount of dividends every month. It’s a great passive income stream. But these days I lean more toward index funds. I don’t have the time or expertise to research individual stocks and index funds allow me to spread the risk and minimize cost as well.
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- #LearnedtheHardWay says
My philosophy is multiple & diverse income streams to support FI. My plan includes Social Security, Multiple Annuities, Rental Income, Small Pension, and RMDs. Net worth means little if anything without a well thought out income plan.
In the last few years I pulled Roth money together and started a DGI(Dividend Growth Investing) effort for the 10th income line item. Being a bit of an investment geek, I can definitely say this is the most exciting part of the portfolio. Today my yield on cost is north of 5.5% tax free and yield grows with dividend increases. Today at 14, goal is 20-30 securities of SWAN caliber.
Advice: Read read read and read more. Dividends Champion Spreadsheets, Seeking Alpha articles, read everything you can get your hands on. Seek dividend safety, buy quality on dips, then you have a tax free source of income(if you need it) and if the dividend is safe who cares what Mr market and Mr individual stock price does short term. And if you don’t need it(the dividend), your value compounds much faster(dividends + underlying security value growth) and it’s a wonderful legacy tool. Or, if your not hands on, pick a wonderful low load DGI fund…
Bring on the dips, keep some powder dry, be patient.
Yes, I guess you could call that a side hustle too!Reply
- Bob says
I have done very well with dividend index ETF’s like Vanguard VYM. No need to pick them myself.
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- Bryan says
Great article. Beginning statement regarding it is not one or the other is spot on. With dividend and investing you obviously need capital but with a side hustle all you need is hustle.
- Papa says
Can you give some examples of a couple of good dividend stocks to start with. Thanks.
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- Brad Castro says
Always a fan of dividend growth investing and like to see it advocated (although I incorporate some conservative option trading techniques to improve/accelerate the process).
One thought I had – why not do the “side hustle” and divert most/all of that into quality dividend growth stocks?
Best of both worlds.
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- Chuck kohout says
Dividend investing is one form of actively investing the stock market (stock picking). I have tried it and cannot beat the market consistently, so I use index funds. I don’t think your time is well spent trying to pick the right stocks when you can buy the market, even within the dividend stock world. Also, if your goal is to grow your retirement nest egg, then paying taxes on dividends will harm you unless they are within a tax deferred or tax exempt account.
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- Frogdancer Jones says
I’ve done both. I really hit my side hustle hard when I valued money more than my time. I made a significant difference to our situation from this and I’ll always regard that time in my life with fondness.
However, once the dial shifted and I valued my time more than money, I quit the side hustle and turned to investing. I have a mixture of dividend and index portfolios.
Seems to be working ok, and I get to enjoy my weekends again!Reply
- Brad says
We always hear about “multiple” streams of income……While that sounds great, spreads risk, etc, I think it’s easier said than done. I have always invested heavily in multifamily residential properties. I am comfortable in this market segment. However something as similar as commercial bldgs gives me anxiety never less something as far from my comfort zone as picking stocks….Just seems uncommon to be comfortable investing in “multiple” disciplines….
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- Mike H says
Put me in the camp to fully agree with this article. There are three independent streams to grow the output of the dividend portfolio:
1. Fresh contributions that can come from new cash or selling a position that becomes relatively overvalued and redeployed into an undervalued or more attractive position.
2. Reinvestment of cash from dividends.
3. Underlying dividend growth.
All work together but my favorite is #3 as it lis like a phantom effect that boosts and compounds your efforts exponentially.
I started dividend growth investing in mid 2014 and witnessed the following growth in my after tax dividend portfolio that holds about 40 individual companies):
2015- $56.7k
2016- $60.5k
2017- $74.9k
2018- $90.8k (estimated for this year)
2019 -$97.5k (will go up with future increases and dividend reinvestment but this is the expected minimum as of now barring any dividend cuts, likely it will be well north of $100k).That’s how the dividend snowball works in action. Good luck getting that kind of sustained growth in a salaried job.
Do this with a side hustle and some real estate rental income on top of this and you will be sitting pretty comfortably indeed.
-Mike
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- Joe says
Are you saying your dividend payouts increased from 56.7k to 97.5k in 4 years with no new money put into investments? Or is that the total size of your dividend portfolio?
If the former, do you have a 5 million portfolio?
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- Dan K says
I’ve been actively investing in dividend stocks this past few years. Love the extra income. Just wished I had done this some 30 years ago!
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- Joel says
I’m a fan of this blog but I’m not a fan of this article overall. I do like where the author’s head is on the basic idea of the article, but the arguments made in this article are very simplistic, lack depth, and misleading (though I assume this is unintentional).
The first argument regarding earning both income and contributing to retirement goals…. there are many types of investing that accomplish these two objectives, including real estate, annuities, and yes, even side hustles. If I earn $500 on a side hustle per month that costs me 10 hours of my spare time, the income from the side hustle can contribute to retirement goals if the money is saved and invested. Real estate actually tends to produce higher income per dollar invested versus dividend investing. The average yield on dividend paying stocks (using the S&P 500 as a proxy) fluctuates around ~2.5% over time (pre-tax) while it’s common for real estate investors to generate 8% or more. On a post-tax basis, real estate can be similar to pre-tax via the use of accelerated depreciation and interest expense (if the buyer uses leverage to purchase real estate). On a post-tax basis, dividends have no offsetting deductions and while they benefit from some tax advantages versus income earned via a job, the post-tax yield on dividends is even lower than 2.5% (assuming the income is not in an IRA or other tax-advantaged retirement account).
The second argument regarding unlimited residual value potential: this is true of most assets that generate cash flow, with the biggest exceptions being oil & gas royalty streams, which deplete over time. The real estate assets I hold can generate income streams for decades as long as the properties are maintained and updated properly.
Dividend investing is also more active than most are prepared to accept. Blindly buying dividend paying securities tends to lull the buyer to sleep over time, and they become unaware of the risks of owning dividend paying stocks. If you’re not monitoring the performance of the companies paying the dividends in your portfolio, you can experience unexpected losses when the cash flow supporting the dividends goes away. This makes successful dividend investing more active than passive. One must monitor their portfolio, actually read financial statements, and pay attention to the underlying performance of the assets being the dividend stream. You need to be prepared to spend significant time reading and doing due diligence if you want to take a DIY approach, or pay an advisor to do the work for you (which most advisors don’t by the way).
The biggest reason to favor dividend investing over side hustles or any other type of income is if you’re too busy to pursue other forms of income, and you’re comfortable and efficient at reading financial statements, annual reports, etc. If you’re either not comfortable with this type of analysis or have some spare time on your hands, often the best results can be achieved through other means.
Overall, anyone who is able to save and invest in cash flowing assets will likely experience the positive effects of the “snowball effect.” Whether you choose to invest in dividend-paying stocks, real estate, or some other form of cash generating assets is a matter of personal preference but all who pursue this path are likely to end up comfortably ahead.
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- Mohammed says
Good comment.
I think everyone loves dividends, me included. One of my investment lessons is companies which focus too much on paying the shareholders cash and starve their own balance sheets and cash reserves. A good example is BHP and it’s progressive dividend some time back.
Market Index funds are the way to go with dividends. Your money and dividends flows between assets inside that investment.
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- Joe says
Agreed, based on experience from managing my own 8 figure portfolio.
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- ESI says
What do you dividend investors consider to be the “best” book on dividend investing?
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- Mike H says
That’s a tough question. I think you would need to read 5-10 books to get a better sense of things.
From Benjamin Graham “The intelligent investor” to Jeremy Siegel “Stocks for the long run” there are several related books to read. A summary of David Fish’s dividend champions, challengers and contenders will also be useful here as will the book Sensible Stock Investing from David Van Knapp.
Since there are so many distributed resources, this may be a good opportunity to author the one book that brings the different ideas together in one place!
-Mike
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- JoeHx says
While I agree with the premise of this article. one way side hustles beat dividend investing is that, at least for some side hustles, you don’t need any money to start. It’s hard to do any dividend investing if you don’t have any cash, extra or otherwise. Side hustling can be a great way to get some money to do dividend investing, though.
Of course, why not both? (Isn’t that a meme?)
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- Lily says
Best tips! I’ve done side hustles and fairly briefly for my young life dividend investing (which I stuffed into retirement sheltered accounts for tax free growth.) The one thing is at the end of the day, side hustles gives you cash in hand whereas growing dividends…. because they’re not physical matter to hold. Still I prefer both because side hustles isn’t permanent or stable and a wide hand has to be played.
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- JC says
Love this blog and the idea behind this post, however the post is a bit simplistic. I personally knew 2 people who thought the same regarding General Electric and look where it left them. I would avoid individual stocks and, perhaps, focus on higher yielding ETFs.
Just my $0.02.
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