Investors Are Wasting 75% of Their Time

You should be thinking about dividends, three quarters of the time.

time is money compounding

Time is the one thing that nobody has enough of these days. In our crazy 24/7 world, you can’t afford to waste it.

Unfortunately that is exactly what most investors do.

Not just a small proportion of it, but a whopping 75%. Why do we do this? Because we have got our priorities wrong.

Going for growth

Too many investors, especially at first, spend their time hunting for stocks they expect to rise in value. Capital growth is all they care about.

Some rush around trying to catch falling knives in the hope that they will quickly fly upwards again.

Others jump onto momentum stocks in the expectation that they will continue to power ahead.

Another strategy approach is to buy undervalued stocks and hope they recover.

Time rich

All of these strategies can make you richer and pursuing them should take up, say, 25% of your time.

However, 75% of your total return over the longer run will come from dividends.

They will make up three quarters of the money you ever make from investing, assuming you re-invest them for growth.

Fun, fun, fun

Regular Fool users may already know this, because we have been banging on about it for years, but too many investors still haven’t got the message.

Too many are distracted by the prospect of buying a stock that will double, triple or quadruple in value.

However, it cannot be relied upon. Share prices can crash, or stagnate for years.

Ultimately, growth is just 25% of the fun.

Income stream

Dividends may not seem as exciting at first yet in the longer run, that is where you will generate most of your money.

Those quarterly or annual payouts may not look spectacular, but you get them year after year.

Well-managed companies will also aim to regularly increase their dividends, giving you a rising income.

The benefits compound over time.

Compound growth

Say you invest $1,000 in a stock yielding 4% a year, and the company increases its dividend at an average rate of 5% a year.

After 10 years, you money will be worth $1,633, giving you a total gain of 63.34%, provided you have ploughed your dividends back into buying more stock. The average gain is 6.33% a year.

If you hold the stock for 20 years and the dividend growth continues, your $1,000 will be worth $3,589, a total gain of 258.86%, or an incredible 12.94% a year.

Any share price growth will be on top of this.

Time is on your side

Even more amazingly, your annual dividends will have grown from $40 in year one to $329 by year 20, which works out as a yield of nearly 33% expressed as a percentage of your original investment.

Too many investors fail to realise this, because they have been spending 75% of their time focusing on capital growth.

Time is money, so allocate yours wisely. You should be thinking about dividends, three quarters of the time.

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.

More on Investing

protect, safe, trust
Dividend Stocks

The 2 TSX Stocks to Buy for Decades of Safe Passive Income

Stable dividend stocks are common, but companies that you can safely hold in your portfolio for decades for their passive-income…

Read more »

woman data analyze

The Market Is Wrong About This 1 Value Stock

Restaurant Brands International (TSX:QSR) stock is getting cheap after the latest correction in shares.

Read more »

Airport and plane

Is Air Canada Stock Finally a Buy This Season?

When you are investing in a prospective recovery, it’s a good idea to watch for favourable industry trends.

Read more »

TFSA and coins
Dividend Stocks

TFSA Investors: How to Earn $2,500 Per Year on $40,000

Investors have an opportunity to secure high yields while reducing risk in their TFSA portfolios.

Read more »

Illustration of bull and bear

A Bull Market Is Coming: 3 Growth Stocks That Could Thrive

These growth stocks all trade undervalued and have tonnes of long-term potential, making them some of the best to buy…

Read more »

Volatile market, stock volatility
Metals and Mining Stocks

Weathering Volatility: Strategies for Success With TSX Stocks

The key to handling volatility is changing your asset mix. For example, if you suspect a market downturn, you can…

Read more »

Path to retirement
Dividend Stocks

Retirement Wealth: 2 Top Dividend Stocks for TFSA Investors

Parking a sizable portion of your savings in reliable dividend stocks is a time-tested wealth-building strategy appropriate for a wide…

Read more »

sale discount best price
Tech Stocks

2 Growth Stocks to Buy Every Time They Go on Sale (Like Now)

The right growth stocks are worth buying in almost any market, but they are especially attractive when they come with…

Read more »