Compounding Your Way To Retirement Using A Savings Plan

How much TIME have you got until retirement? The answer is different for all of us, we are all different with our lifestyle, interests and needs. Sometimes how much you have in your retirement account dictates when you retire, not age.

If you work for someone else, your employee status may not be something that you enjoy, you can’t wait to leave. Or maybe you love your work and would never dream of leaving. At some point in your life you will look at your current work situation and think, am I happy doing this for another 10 or 20 years?

Whatever your situation, a savings plan, where you put regular savings into an investment, provides ‘peace of mind’ and also creates a great discipline. Once you start it becomes easier, like all habits. If you can save 10% of your income, put 5% into a regular savings plan and invest into companies who pay out dividends regularly, your retirement could be the best time of your life.

Free to pursue whatever interests you have at your own pace, maybe starting your own business. Sadly, the vast majority of people live week to week, have meagre savings, and at retirement age, find out they don’t have enough money.

You can change this way of living, it takes discipline and focus, and the need to better your situation. Plan a way to save 10% of income(or more) now, write out a budget and stick to it! 5% of your savings can go to a savings account for future expenses, and 5% can go to your COMPOUNDING strategy.

Your COMPOUNDING strategy can consist of buying dividend paying companies, then reinvesting those dividends into MORE shares.

Say you can save $20 a week, over a year you will have saved $1040, enough to start a regular yearly investment. Over decades and decades, contributing $1000 into quality companies will start your ‘snowball’ rolling. The longer your snowball rolls(the more TIME you contribute) will have a huge effect on your account balance.

When your account grows enough, so that the desired income per year is reached, you can switch from dividend reinvestment to receiving cash. As long as you still own the dividend paying companies, you will have an income. Sadly the growth in new shares isn’t there, but your aim of an income stream is.

Even if you are 50 or 60, starting a savings plan for the future is worth doing. With modern advances in medicine, many more of us will live to 90 or 100.

Compounding Is The Best And Least Time Consuming Strategy

Time in a Compounding strategy is your biggest friend. The longer your investment is allowed to Compound, the bigger your Account becomes.

If you have a ‘super’ busy life, and have a lump sum to invest, after making the initial investment there is nothing more to do. Get on with your life and watch your dividend reinvestment strategy build up.

Compounding involves adding to your original capital invested every year, and then that new balance to be added to in the next year, and so on. Buy solid dividend paying companies, like the Dividend Aristocrats, and you are assured of the best Compounding strategy available.

Not only do Dividend Aristocrats pay dividends every year, their dividend history through all sorts of market upheavals, their dividends also Rise every year. This means a Growing dividend Yield for the Compounding strategy, and when coupled with dividend reinvestment, you have 2 strategies in one!

Most pay Rising dividends 4 times a year, so no matter the current state of the market, reinvestment is taken care of by these companies for you. No temptation to sell in a big drop, just let the reinvestment strategy take care of itself, and LET IT COMPOUND.

Your Time is your own, after the original investment is made, just ‘put it in the bottom drawer’ and watch it Compound for as long as you like.

In the last big ‘drop’ in the market (2008-2009), 10 Dividend Aristocrat stocks were delisted from the Dividend Aristocrat Index because of changes to their dividend policy(they cut their dividend), so make sure to only invest in the ‘biggest and best’. The longer they have paid rising dividends and stayed in the Index the better.

Companies like McDonald’s, Johnson & Johnson, 3M, Wal Mart, who have paid rising dividends for decades, through all sorts of economic shock/upheavals, are the ones to invest in.

If you are investing through a savings plan, you are probably adding to your investment once a year, so again your Time is yours.

Even if you have 10-20 years to go till retirement, don’t ‘put off’ this strategy, as Compounding is the best ‘hands off’ strategy there is. Even if only your bills in retirement are taken care of, that is a huge bonus, the alternative is not pretty.

The best holding period for this strategy is ‘forever’, but when you eventually need the money, there is no need to sell, just change the reinvestment part to cash dividends, and everything ‘is sweet’. No capital gains tax, as no shares have been sold, you are receiving a ‘GROWING’ income stream for ever!

Time is your FRIEND in a Compounding investment strategy, so start NOW.

For a website dedicated to creating wealth by compounding, and creating long term wealth, go to [http://www.wealthbycompounding.com] This article has been written by Gregory Neil Smyth, who has just released an eBook ‘How To Create Wealth By Compounding’ and is available for purchase at the above website.

Wealth Building For Your Retirement

Dividend growth investing is a common sense approach to wealth building and used by millions of people to build retirement security. While dividend growth investing requires a time horizon of 10 or more years, it is fairly simple to learn and apply.

The foundation of this investment style is to invest in sound, well-managed companies with long track records of paying and increasing dividends. The secret to success is that rising dividends over time grow your money through the compounding of reinvestment.

Compounding dividend growth is a great wealth building system as it exponentially super-charges the rate that your money grows. The great investor, Warren Buffett, will not buy non-dividend paying stocks. He fully recognizes the increased wealth that dividends provide.

During its 94 year history, over 50% of the S&P 500 total return came from dividends. The average annual return since inception is around 10% with dividends reinvested.

For example, assuming a current annual dividend paid of $3.00 per share at annual growth rate of 7% and the stock price growing at 5%, $10,000 invested would increase to $57,108 over 20 years. The reinvested dividends alone would be $21,823.

Out of all American large-cap to mega-cap stocks, 513 pay dividends. Many are considered blue chip companies that meet or exceed the growth rates just mentioned.

Here are three examples of companies that exceed these growth rates and the years they’ve increased dividends: Johnson & Johnson – 54 years; Procter Gamble – 58 years; 3M – 60 years.

Dividends are also indicators of well-managed companies with sound business models. Dividends are real money whose source is a strong balance sheet, good cash flow, and low corporate debt.

Foundational to this method is investing in companies that continue to grow under varied economic conditions. Dividend growth investing is a tortoise vs hare approach to wealth building and requires companies that have long histories of success in all economies, both good and bad.

Dividends provide peace of mind during market downturns. The stock market historically goes through periods of highs and lows, with sharp fluctuations in share prices.

Down markets provide opportunities to buy company shares at bargain basement prices, and the growing dividends pay the investor to wait for market turnarounds. Stock shares bought at discount with dividends reinvested help smooth the long-term ride in the market. This provides a margin of safety.

The dividend payment is not tied to stock share price. Investors receive cash dividends from well-run companies that are in good financial shape. This, too, gives a margin of safety.

Reinvested dividends also build a hedge against inflation. Even a 3% rate of inflation will stymie the real purchasing power of a dollar bill, reducing it to about $0.55 cents over time.

$10,000 hit with 3% inflation over 20 years is reduced to $5,536.76 spending power. An investor would need $18,061 to have the same buying power as the original $10,000.

On a nest egg of $100,000 in retirement funds, the lost purchasing power would equal $55,367.58. It would take an amount totaling $180,611.12 to provide the same security.

To summarize, you cannot match inflation and expect to build wealth. You must exceed inflation by a significant margin to give yourself a good retirement cushion.

Over the long-term, dividend-paying companies provide average annual returns of 8.5% vs the 4.3% return of non-dividend stocks. Still, yet, companies with growing dividends return 10.6%.

The power of compounding dollars through dividend reinvestment is one of the greatest wealth builders available to everyone, and dividend growth investing puts this power in your hands.

I have been an active investor for over 35 years. My investment experience is in Equities, REITS, Oil & Gas Royalties, Utilities, and Varied Fixed Income. JG is not a registered investment representative. The opinions of the author are not recommendations to either buy or sell any security. Prior to investing, please conduct your own due diligence and talk to your financial advisor or security professional.