Hi everyone. Welcome back to my channel SugarMama TV. Before I launch into money
Monday I have a small favor to ask. If you purchased The $1000 Project,
and you really enjoyed reading it. I would greatly appreciate it if you
can leave me a review from wherever you bought the book. So whether that be
Booktopia, The Book Depository, Amazon, iTunes or iBooks or even eBay. I would
greatly appreciate if you can leave a few words explaining what you thought
about that the book and how it helped you. Now on that note if you haven't
subscribed already please make sure you do. Now moving on to money Monday it is
all about how to build up your share portfolio using dividend reinvestment
strategies. Now dividend reinvestment strategies is essentially where you
forego receiving your dividends or that is your passive income. Instead of taking
the cash you choose to have that money used to purchase a bigger ownership in
that business. For example say I have 10,000 shares in company XYZ
traded on the stock exchange. And they announced that they're going to be
paying a dividend of 17 cents per share to the dividend holders the shareholders.
Now instead of receiving $1,700 in cash. I decide that I'm really serious about
building up my wealth and creating financial freedom, and I want to make the
most of that income to really build my wealth. So instead of receiving the
$1,700 in cash. I choose to have that money used to purchase more shares in
the company. So with the dividend reinvestment plan instead of the getting
$1,700 cash I will get approximately 204 more shares in the company.
So now after the dividend reinvestment has gone through I actually own ten
10,204 shares in that company. Now this is a fantastic way of
building wealth if you could afford to forego the dividend. If you can delay the
gratification and have a little bit of a sacrifice it's a brilliant way of
building wealth. Because that share portfolio is now worth 204 shares more
than what it was previously. Plus I didn't have to pay any brokerage to pick
up those additional stocks so that's actually saved me money. Also sometimes
companies offer discounts when you choose to reinvest the
back into the company. Means the company doesn't have to pay out those profits,
and they can actually build up the capital within the company. Also it's a
fantastic set and forget strategy it's really simple. When you buy shares and
you get the paperwork in the mail confirming you're a shareholder and how
many units you have in that company. They will give you the option if it's
available to reinvest the dividends, and you simply tick a box. For full
dividend reinvestment or you can even do partial dividend reinvestment. Sign it
and send it back. You do not need to think about constantly having to buy
more shares in that company because it doesn't for you organically. Also I think
one of the best things that comes with dividend reinvestment is it's forced
investing there is no temptation for me to spend that $1,700 cash because I
simply haven't received it. It's proactively gone back into the
portfolio for more compounding growth opportunities. And as I said most of the
shares within The $1000 Dollar project SugarMama portfolio are
enrolled in an automatic dividend reinvestment. I do not want to see that
money going into my bank account if I don't want to. Because I don't want to
accidentally spend it or have any temptation I want to make sure it all
goes back for compounding growth opportunities. Now in that example that I
just used where I had ten thousand two hundred and four shares in that company.
When it comes to paying a dividend again I'm going to get even more passive
income or even more shares to reinvest. And that is because my ownership within
the companies even bigger. So next time they pay a dividend or say eighteen
cents. You know per share I'll be getting even more shares in that company, because
it's based now on not the ten thousand that I own right now but now the ten
thousand two hundred and four shares that I now own. Now there are a couple of
limitations that come with dividend reinvestment that I need to make you
aware of. When they announce a dividend and the share price might be quite high
and if you choose to enroll in a dividend reinvestment plan. That may mean
you're picking up new shares at a very high price that you're not actually
happy with. But for me because investing owning shares is a long-term investment
generally I'm not too concerned about it. Also when it comes to reinvesting your
dividends particularly over the long run. You need to be really meticulous with
keeping records. If you own stocks for say thirty years
and dividends are paid two times per year. There's essentially 60 transactions
that you need to make where of when you need to go and actually sell those
shares potentially further down the track. But for someone like myself, I
never intending selling. Why would I want to cut off my passive income stream?When
I buy shares I want to hold them indefinitely. Now the final thing and
probably the biggest concern that comes to dividend reinvestment, and that is
diversification. Say you have 20 different stocks in your share portfolio.
And only 15 of them have this dividend reinvestment plan. The other five
remaining stocks or companies in your share portfolio have to pay those
dividends as cash. Over time you end up risking the portfolio being out of
balance. Those 15 stocks that have dividend reinvestment plants have really
grown. And they have a heavier weighting in your share portfolio than the remaining
5 that couldn't actually have dividend reinvestment plans. You have to actually
monitor and track the diversification. So that you never have too much business
ownership in one or two companies in comparison to the whole portfolio. Now
one of the ways to overcoming that is with new money or when you receive those
dividends that cannot be reinvested. Is you manually and proactively go and buy
more shares in those companies that don't offer that plan. So you make sure
that your portfolio is equally balanced across a whole range of different stocks
and of course different industries. This is really important for helping reduce
investment risk in your share portfolio. So if you're in a situation where you're
building a share portfolio and you're working and you're able to survive
financially living off your own salary. And you are really enthusiastic and
motivated to build your share portfolio. Using a dividend reinvestment strategy
is a fantastic one and it's not just available for shares you can also do
this with some of the exchange-traded funds and also listed investment
companies. Which are also a fantastic way of building up a diversified share
portfolio. Alright everyone that is it for this
video. I really hope you've enjoyed it it's a little bit more technical than my
other videos. But as I like to say I'm helping build your level of financial
knowledge and information. If you haven't subscribed please make sure you do and
as always feel free to share any of these videos. And make sure you check out
many of my other Money Monday financial advice videos. Ciao for now
No comments:
Post a Comment