How to Get Wealthy: Invest Early and Often

Spend less than you earn and invest in quality dividend stocks such as Fortis Inc (TSX:FTS) to receive a growing income forever.

| More on:

Do you have leftovers from your paycheque every month? If you do, congratulations! By spending less than you make, you can save for your future. Actually, that’s where your initial investment funds come from–your savings.

Think about it. Even if the wealthiest people on earth spend extravagantly, they’ll eventually run out of money.

So, in order to stay wealthy, you first need to save. Second, invest those savings.

Your investment start-up fund

For new investors, their investment start-up fund would come entirely from their savings.

Statistics Canada notes that the 2013 median income for individual Canadians was $32,020. Assuming a 3% growth rate, this year’s median income would be almost $35,000.

Peter is a new investor who just finished college and found an entry-level job to earn a median income of $35,000. A nice start would be if he could habitually save 10% of his gross income, totaling $3,500 a year.

Because he’s in a low-income tax bracket, he decides to begin saving and investing in a tax-free savings account.

For starters, he’d like to stick to dividend investing because dividends from quality dividend-growth companies are more reliable than volatile stock prices.

Building his portfolio

Peter has been preparing himself by spending at least an hour each week for the whole year reading about investing with a specific focus on dividend-growth investing, which made his retired aunt rich over time; she’s now maintaining her wealth because she’s only spending her dividends but not the principal.

Peter loves the idea of dividend investing because it will help increase his available funds for investing. On top of his savings of $3,500 per year, his dividend portfolio will generate additional income to add to the $3,500.

At the end of the first year, Peter decides to invest $1,750 in each Fortis Inc. (TSX:FTS) and Canadian Western Bank (TSX:CWB). The companies are two of the top Canadian dividend-growth stocks with over 20 years of consecutive dividend increases.

Today, Fortis yields 3.75% and Canadian Western Bank yields 3.6%. So, if Peter invested today, his portfolio will generate an annual income of roughly $128 for the first year without accounting for any dividend hikes. In the next year, he’ll then have roughly $3,628 to invest.

Conclusion

Peter’s two-stock portfolio lacks diversification. However, investing in a solid utility and a discounted bank is a good start. If he tried to invest in more companies with the original $3,500, the commission fees would be too costly.

Peter plans to continue building his income portfolio one stock at a time to diversify slowly.

He knows that he will only stick with quality companies that tend to be profitable, even when the economy is not doing well, which means he’ll avoid companies that are affected by commodities directly.

In the early stage of investing, Peter knows that his savings rate is very important. He’s going to add any bonuses and raises he get from his job to his investment fund for a higher income to speed up the growth of his portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of CDN WESTERN BANK and FORTIS INC.

More on Dividend Stocks

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »