Managing Your Dividend Expectations
One of the best ways to make money in the stock market is to get involved in dividend investing. If you are careful, you can find success in dividend investing. Before you get started, though, there are some things to keep in mind. If you expect too much too soon, or think that dividend investing comes without risks, you will be in for an unpleasant surprise.
1. You Can’t Expect Immediate, Huge Amounts of Income
The first thing that you have to understand about dividend investing is that you can’t expect to earn money in significant amounts to start with. Unless you have a large amount of capital to invest, you are unlikely to own enough shares to see a significant income stream. Instead, building a dividend investment portfolio is the work of time and effort. You have to be ready to invest regularly, and be patient. Dividend investing is not get rich quick.
2. It’s Important to Research Your Investments
Investing shouldn’t be about just putting money into anything that comes along. If you want to be a successful dividend investor, you need to do some research. This can be boring at times, since you won’t see exciting returns, and you will have to research what makes sense for your situation. Know what plan will work best for you, and understand different methods of evaluating stocks, including look at P/E ratios or considering the dividend growth model.
3. You Could Lose Money
Another thing to understand about dividend investing is that you could lose money. Even though solid dividend stocks come with relatively low risk, as compared to some other investments, there is still the chance that you could lose money. A lot of money. Remember that there are share prices are involved – not just dividend earnings. If you sell when the market is low, you could lose a great deal of money, just as you would with any investment.
Also, remember that dividend payouts aren’t guaranteed, and that you could lose a portion of your income if a company cuts (or eliminates) the payout.
4. Pay Attention
It’s also a good idea to pay attention to things like diversity and asset allocation. Consider what asset allocation is likely to work well for you, and invest for diversity across sectors, as well as consider foreign dividend stocks. That way, you won’t be overexposed in one area should it take a hit.
Also, remember that paying attention means buying when there are bargains to be had. Pay attention to when dividend stocks go on sale. You can pick up more shares for a better price, boost your payout in some cases, as well as preparing for future growth.