Last week I was talking with a colleague about money. He told me that the interest rate of his savings account was ridiculous low (less than 1%). And he read that this year the interest rate would probably be negative! He was worrying that his savings would be less at the end of this year.
I agreed with him and told him that money in a savings account will not make you rich these days. Even if the magic of compound interest kicks in. With an interest rate of about 1% it takes 72 years!! to double your money. He was really startled. He asked me what I did with my savings. I told him that I had an emergency fund of € 10,000 and the rest of my money is in my broker account. “ But it is very hard to make money in the stock market” he replied.
I told him what my strategy is with stocks, Dividend Growth Investing. Not only do I own Dutch stocks, I also own US stocks. I only buy dividend stock that has been paying at least 10 years of uninterrupted dividend. In the Netherlands are not that many companies. In Europe there are more (see also the article of my Belgium friend – No More Waffles. Click here). Both in Europe and The Netherlands most dividend is paid once or twice a year. In the US there are much more stock that pay regular dividend. And most of them pay on a quarterly base.
My colleague was really interested by now. So I told him that dividend-paying stocks have a better return on investment than non-dividend-paying stocks. Studies showed this again and again. If you bought $1,000 in S&P 500 stocks just after WWII, it would be worth more than 1 million today! (of course only when you reinvest the dividend). If you did not reinvest the dividend you would have earned something like $ 100,000. I told him that this difference could all be accounted to compounded interest! The eight wonder of the world.
And another advantage of dividend-paying stocks is that they perform better during a bear market than non-dividend-paying stocks. During the bear market of the beginning of this century non-dividend-paying stocks decreased in value with an average of around 30%. Dividend-paying stocks only declined around 10% on average.
He was firing question at me, with the speed of light. Which stocks to buy? Which broker do I use? How do I select stocks? Etc. I told him he has to do his homework. You can’t only rely on advice from others. Make your own choices and be accounted for it. He was really enthusiastic.
Because I try be anonymous as much as possible, I did not told him of my website. He has to find out for himself that there is a great community, here on the web about DGI.