Polliesdividend

What a difference a little bit of math makes

I had a discussion lately with a friend about dividend investing. He said that is not the right method for him. It will take too much time to really be effective. He wants returns, preferably high ones with low risks, and of course in a short amount of time. When he said this, I looked at him and told him (with a big smile) to go to the casino. There he has the most opportunity to realize his dream.

We, as DGI’s, know that dividend investing will not give you amazing return in the first ten years. But after ten years the snowball will really get some momentum and will grow bigger and bigger. And the eight wonder of the world, compound interest, will really kick in!

In the first ten years you have capital gains and your dividend as a great supplement. Your Yield on Cost (YOC) (see the great article of Lanny from The Dividend Diplomats) will be low in the first couple of years. But if you reinvest your dividend and the dividend is raised every year, your YOC will be great after ten years. And amazing after 30 years.

I showed my friend, with a little math, the power of compounding. I said if he invest € 1,000 in one year and he has an average return of 10%, his initial investment after 5 years will be worth € 1,610. This is not that spectacular. But after 10 years it is € 2,593 and after 30 years € 17,449.

And all he has to do is nothing! Just let the money (and interest/dividend) do its thing. He only gazed at me. The figures made sense to him. I told him that the results would be even more amazing if he puts fresh capital in, in the first 10 years.

A week a so later, I ran into my friend again. He told me he has done some serious thinking about what I told him. And he was thinking about opening a broker account and start investing. He said that I showed him how he could create a college fund for his kids.

And that put a really big smile on my face 😉

Cheers,

Pollie

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9 thoughts on “What a difference a little bit of math makes

  1. roadmap2retire

    Way to go, Pollie! Good on you for educating people and explaining the power of compounding. Hope you friend embarks on the journey.

    cheers
    R2R

  2. ambertreeleaves

    Well done, educating people is a good thing. Especially the part where you highlight that the casino is the place to be for his dream!
    If more people would understand the power of compounding…

  3. DivGuy

    Yay! Always feels good to make someone realize this. I wish there was a course for that at school. Next generations could really change the world if they get that maths early!

    Cheers,

    Mike

    1. polliesdividend Post author

      Hello Mike,
      Teach young kids the right basics and it will last a last a lifetime.
      Catch them young!
      Lets all try to educate another person and really make a change!

      Cheers,
      Pollie

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  5. Chris

    Hi Pollie,

    Great story. But i have one question/remark: You say 10% growth/yield per year. But the Most (reliable) stocks are yielding between 1-5 percent. It seems to me that 10% is not that easy to realise with stocks like Microsoft macdonalds Unilever etc ?

    (Keep go like this, i’m following your blog with interest)

    Best regards,
    Chris

    1. Pollie

      Hi Chris,

      Thanks for stopping by and your kind words!
      I don’t look at individual stocks. If you look at the stock market as a whole, a yield of 8 till 9% is the historical yield.
      And if I look at my own track record, I have a historical yield of more than 10% since 2009. So that is why my calculations are with a yield of 10%.
      You have to keep in mind that my yield consists of market gains and dividends!

      I hope this answers your question.

      Cheers,
      Pollie

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