Getting started with investing can feel exciting, but it’s also normal to have a lot of questions. A 20-year-old university student recently posted in the Dividends subreddit, asking for some advice on how to get started.
The Redditor has saved a decent amount of money and is ready to commit to dividend investing. The original poster has been monitoring current trends and has some market knowledge. Some people left their comments on the best way to start investing.
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One commenter suggested that the 20-year-old start with a growth position like the Vanguard S&P 500 ETF (NYSE:VOO) instead of committing to dividend stocks. While dividend stocks are valuable for many portfolios, most dividend-paying companies are mature firms that lag the stock market. It’s more common for investors who are approaching retirement to buy blue-chip dividend stocks that offer lower volatility and higher cash flow.
Meanwhile, young investors usually gravitate toward growth stocks and ETFs. Younger investors can take more risks, but you still have to assess your financial situation and risk tolerance before constructing a portfolio.
Granted, the Redditor can still have a mix of growth ETFs and dividend ETFs. However, the growth ETF is likely to outperform. Furthermore, the Redditor has a lot of time to ride market uncertainties and see the returns compound.
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Another commenter encouraged the 20-year-old student to buy stocks and forget about them. Dividend investing requires a long-term focus, and cash flow goes up with each reinvestment and contribution.
Some investors panic during market corrections and sell their shares, hoping to limit the damage. However, it’s important to keep a long-term perspective and assess companies by their intrinsic value instead of their market prices.
Dividend investors can retire on their cash flow if they stick with it for decades. Annual contributions, dividend reinvestments, and dividend hikes all lead to higher cash flow. Just as a snowball builds momentum as it rolls down a hill, your dividend portfolio can build momentum each year if you set it and forget it.