Third Simple Step To Retire





Hi folks

This is the third step in the original retirement series HERE.

I feel compelled to show how boring old dividend investing can produce excellent returns over time.

Take a simple $1000 that you invest in an old boring Licensed Investment Company, which, on average gives a very boring 7% average return over time.  That 7% is made up of a very modest 3.5% growth in share price and a very unimpressive 3.5% increase in dividend yield. (Yawn)

Just looking at that original $1000 you originally invested and assuming you never add another cent to it and that you spend all the dividends every year - have a look at the growing dividends year on year of this original $1000 (the far right column). Also look at the third column showing the yield growth year on year.



Years
 Cost
Yield
Stock
Growth
Dividend Growth
Total
Return
 Dividend
zero
 $ 1,000.00
3.50%



 $    35.00
1
 $ 1,000.00
3.75%
3.50%
3.50%
7.00%
 $    37.45
2
 $ 1,000.00
4.01%
3.50%
3.50%
7.00%
 $    40.07
3
 $ 1,000.00
4.29%
3.50%
3.50%
7.00%
 $    42.88
4
 $ 1,000.00
4.59%
3.50%
3.50%
7.00%
 $    45.88
5
 $ 1,000.00
4.91%
3.50%
3.50%
7.00%
 $    49.09
6
 $ 1,000.00
5.25%
3.50%
3.50%
7.00%
 $    52.53
7
 $ 1,000.00
5.62%
3.50%
3.50%
7.00%
 $    56.20
8
 $ 1,000.00
6.01%
3.50%
3.50%
7.00%
 $    60.14
9
 $ 1,000.00
6.43%
3.50%
3.50%
7.00%
 $    64.35
10
 $ 1,000.00
6.89%
3.50%
3.50%
7.00%
 $    68.85
11
 $ 1,000.00
7.37%
3.50%
3.50%
7.00%
 $    73.67
12
 $ 1,000.00
7.88%
3.50%
3.50%
7.00%
 $    78.83
13
 $ 1,000.00
8.43%
3.50%
3.50%
7.00%
 $    84.34
14
 $ 1,000.00
9.02%
3.50%
3.50%
7.00%
 $    90.25
15
 $ 1,000.00
9.66%
3.50%
3.50%
7.00%
 $    96.57
16
 $ 1,000.00
10.33%
3.50%
3.50%
7.00%
 $  103.33
17
 $ 1,000.00
11.06%
3.50%
3.50%
7.00%
 $  110.56
18
 $ 1,000.00
11.83%
3.50%
3.50%
7.00%
 $  118.30
19
 $ 1,000.00
12.66%
3.50%
3.50%
7.00%
 $  126.58
20
 $ 1,000.00
13.54%
3.50%
3.50%
7.00%
 $  135.44

This is what is known loosely as YOC (Yield On Cost). It is a powerful compounding principle that you will never hear about on the news or in any glossy investment magazine either.  It is just good old basic high school compounding math.

Hopefully this inspires everyone to get busy buying up the exact number of shares needed to give the income you need (that you worked out HERE) over as shorter time frame as possible.  

Over time your initial purchases will be earning impressive returns with no effort on your part - just letting time and compounding working their magic. Ah, the beauty of 'old' money.

If you buy wisely, then just ignore the share price fluctuations and focus single-mindedly on the dividends growing every year. Essentially, you are building a future income stream. 

With consistent wise purchasing, dividend reinvesting plans quietly rolling over, buying up when shares are cheap and letting the above chart play out over time ..... you'll be surprised how quickly you can hit your income number.

Hot Tip - the earlier you start, the less you'll need to personally buy.  The 8th wonder of the world  takes care of all the other purchases.


Take care folks and stay nice.

Mr HM (Phil)

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