Does your portfolio include dividend stocks? Many investors — particularly younger investors — focus on growth stocks while giving less attention to dividends. While dividend investing may lack the excitement of a high-growth portfolio, it deserves its place to help you reach any financial goal. How should you approach dividends for the best success? Here are three key steps for your dividend component.
1. Boost Early Returns
From the beginning of your investment plan, a good dividend strategy is to use dividends to accelerate growth. Do this by reinvesting your dividends to buy new investments. These investments could be stocks of the same company, stocks of other companies, or alternate investment options. Whatever you choose, adding the reinvested dividends allows you to throw extra money into your portfolio even when you don't invest cash directly.
2. Diversify as You Grow
Diversification is valuable at any stage of your investment career. Without sufficient diversity of investments — growth stocks, startup investments, bonds, and dividends, for instance — your risk of loss is much higher. If one element of the economy sours, your entire portfolio could take a hit.
However, by having money in a variety of investment tools, you can weather changes better. If growth takes an economic hit, you would still reap current dividends that either provide income or keep your returns positive through the difficult times. This diversity should be assessed at least once per year to ensure that you have the right balance between safety and high returns.
3. Adjust Dividends for Stability
Investors don't have the same needs or goals throughout their life. For most people, the earlier years are about growth and wealth-building while later years are about stabilization and income. No matter what goal you have — retirement, starting a business, buying assets, etc. — your plan should change as time goes by. The closer you get to the finish line, the safer your portfolio should likely be.
This is where an adjustment from focusing on growth stocks to taking advantage of dividends is valuable. Dividend stocks should become a greater part of the overall portfolio, creating steady income toward the goal and reducing volatility. This way, you are in a good position to use the money for its purpose no matter what is going in the company or in the economy.
Are you using dividend stocks to their greatest benefit for whatever goals you have? If you're not sure or want to learn more about dividend options, consult with a qualified financial planner today. You'll start reaping the financial rewards as early as tomorrow.
For more information, reach out to a local wealth management company.