There’s no doubt that trading is fun. The thrill of a big win, watching the market lose and gain hundreds of points at a time, and watching those earnings reports hit the news wires make for a fun experience but is it good for your portfolio? Are you actually making any money in your short-term trading activities? And is there a better way?Dividends are Boring
Yes, it’s true. Buying a stock and letting it sit there for what is sometimes years or decades isn’t exactly fun. Dividend paying stocks tend to be less volatile than the uber-exciting younger tech names who log double digit percentage gains regularly.
But stocks are a lot like real life. In your 20s, you might have led a super exciting life full of big adventures and stories that would make for a great blockbuster movie but here’s the issue: You probably weren’t making any money.
Then, as you got older, settled down, got married, and maybe had a few kids, life wasn’t as exciting but with routine came a paycheck, company benefits, and a financially secure lifestyle.
What does all of this mean? In the investing world, most people get rich slowly and steadily. Warren Buffett, who famously says that he likes to hold stocks forever, has a portfolio full of boring stocks—yet, he’s worth $61 billion.
Historically, more than 50% of the gains in the stock market over the last 40 years have come from dividends. Sure, a company can cut its dividend but buying dividend paying stocks is far less risky than buying a stock in the hopes that it rises in value. You don’t have to guess. You know what you’re going to make.
What if you didn’t have any idea how much you would make next time you got your paycheck? That’s no way to live. It’s just asking for a stressful life. Stock investing is the same way. It might be thrilling but you can’t plan your financial future around highly volatile stocks.
Don’t Buy Just for the Dividend
Dividends tend to be stable but that doesn’t mean that you just screen for stocks with the highest dividends and buy them up as fast as you can. You still want to invest in a quality company that has upside potential. You still have to examine balance sheets, listen to conference calls, and study the metrics that we provide to you here at Wootrader.
If the company passes all of your tests, you’re setting yourself up for two ways to make money—the growth of the stock and the dividend payment!
If you love the thrill of those highly volatile stocks that are up big today and down big tomorrow, reserve a small portion of your portfolio for short term trading but keep an eye on your numbers. If what you’re doing is making money, congratulations. If it isn’t, it’s time to try a new strategy. Now go out there and make some money!