[th1agofm]

I advise you don't focus too much in dividends but spread it in emerging markets, gold and others.

In the short term it looks like a bad idea, because you could have more income coming from your dividends, but when a crisis or something hits, it's worth it.

[mcdougle]

What kind of crisis are you thinking? Because if you're talking something like 2008 again, dividend stocks should be fine -- the market value of the stock will drop, but the dividends should remain stable. In fact, the smart investor loves those times -- it's a great time to accumulate assets.

If you're talking something like a collapse of the entire economy, then yes, tangible assets like gold and real estate are much better. It's not impossible, but I don't know if it's especially likely that's going to happen....

That said, I do invest in gold/silver and real estate as well for various reasons. I also invest in dividend stocks for other various reasons. They all have a place in my strategy.

I haven't done much research on emerging markets, but isn't that a very high-risk/high-reward investment? For now, while I'm still stuck at my job and not yet "rich" (by my conservative definition) I'd rather mitigate my risk and have some control over my investments -- I plan to be successful and well-off, I'm not just hoping that I get lucky and one of my investments' value goes through the roof.

(I'm not criticizing and I didn't downvote you. I'm actually interested to hear others' investing strategies, maybe I can learn something new!)

[applecore]

If you're under 40 years old, it's better to invest entirely in growth stocks over dividend stocks[1].

In theory, dividends are a great source of passive income, but with effective yields of 2-3% you'd need a lot of capital to generate any meaningful income, i.e., a $1M investment would pay around $30,000 annually.

Dividend stocks have never performed that well; they never appreciate 10-20x like certain growth stocks, they usually underperform relative to the market, and when the market declines they all go down just the same.

Here's an example: over the past two years P&G (PG) and Coca-Cola (KO), two dividend stock favorites, are up about 20% and flat respectively. The S&P 500 index is up 40% in the same period, Facebook (FB) is up over 200%, and Tesla (TSLA) is up over 700%.

[1]: http://www.financialsamurai.com/better-to-invest-in-growth-s...

[mcdougle]

True. But, as I said before, my strategy is about mitigating risk and increasing control over the outcome.

To get that 700% increase in Tesla, you would've had to get in early; and how do you know at that point that the stock's going up or down?

While I'm sure plenty of people actually do make significant money on growth stocks, it's about appreciation and capital gains. Worse, it's about appreciation of an asset you don't have control over. It's got better chances than trying to win the lottery, I guess, but you can't really know what the future holds. Everything I've heard about other people investing in the stock market (and hoping their portfolio goes up) usually involves wins and losses -- which end up cancelling each other out. You also have to realize the gains to get them. If you don't sell when the market is up, you might lose when the market goes down.

Dividends (not the value of the stock, but the dividend it pays), however, tend to remain stable, even through crisis situations like 2008.

Now, I've read about some pretty complex investing strategies that involve options and all sorts of hedging -- strategies that basically ensure a return by mitigating the risk. But that takes a lot of learning (and time) and I'm not really a stock guy. I feel like my time is better spent focusing on big wins in other areas (where I have more knowledge).

You mention that dividend stocks don't perform well -- but the purpose of investing in dividend stocks isn't usually about watching the price of the stock rise. It's about the dividends -- which are nice by themselves, but also usually rise about 15% a year for those companies. It's also about DRIP investing -- reinvesting the dividends rather than accumulating or spending them. Between DRIP and annual dividend increases, the stock compounds on itself. With any compounding investment, the key metric is time -- so starting early and letting it compound over your lifetime is very beneficial.The idea isn't about investing $1m immediately for $30k/year immediately. Invest slowly over time to have $1m worth of stocks paying $30k/yr (while not actually paying that full $1m, since much of it came from DRIP and hopefully dividend increases)

However, I'm not saying you're wrong, this is all just my opinion. I'll admit my stock investing strategy is very conservative, but like I said, I'm not much of a stock guy. Until I discovered dividend investing strategies, I thought about investing in index funds -- and even before that, I avoided the stock market entirely. I'd much rather own and control my assets, which is why I'm bootstrapping a business and investing in rental real estate primarily -- and reinvesting the income into dividend stocks (when it's an attractive investment) for sort of a stable "base-layer" of "backup" income (down the road -- after compounding) that I honestly hope to never end up using.

EDIT: I just wanted to give an example.

Say you have a stock that's worth $50 and pays a 3% dividend ($1.50 per share). You buy 1 share per year for the next 30 years.

Let's assume no growth -- the stock stays at $50 per share and 3% dividend for the entire 30 years. So you've spent $1500, total, on this stock over that period, and purchased 30 shares. However, with dividend reinvesting, your total holdings at the end of that time are 47.58 shares (you can have fractional shares with DRIP) and the total value is $2,378, and pays a $71 annual dividend. The value of the stock, with no appreciation whatsoever, is about 60% higher than the total purchase price ($1500), and the dividend it pays is about 5% of the purchase price.

Now add a 15% dividend increase per year and an average 15% stock price increase per year (if the price remains stable, the math goes crazy -- you end up paying $1500 over 30 years and have a $2m portfolio paying $4m in dividends!). You pay $59k over 30 years for 1 share per year of stock. At the end of the period, you end up with 7 extra shares and your portfolio is worth almost $370k -- that's a 500% increase in value over what you paid. You also receive an $86 annual dividend per share, and over $3k total per year -- again, a 5% dividend at the end.

These are very simple examples, as well. Realistically, there are a ton of extra variables. You probably buy more stock as time goes on, simply because you make more money. You might also buy a whole bunch more during market crashes, reducing the average cost per share at the end of the investing period -- or you might buy less when the market's soaring. Stocks might stagnate, companies might go through hard times, etc. forcing you to stop buying or outright sell. Plus there's inflation and all.

[smileysteve]

Gold is a store of value, it's not very likely to beat inflation.

A dividend stock is likely to beat inflation, (but not with as much growth as a growth stock.) Theoretically, if you're only using the dividends, it's just as good in downturns (as long as it's not GE/GM/BAC with huge non core financing arms).

My risk adverse holding is a major, regulated, electricity provider. If it goes out of business, it's likely that I also don't have electricity.