So what’s the advantage of income from top dividend paying stocks over rest of the pack? You will find your answer below!
Let’s first cover the lousy alternatives then we’ll dive into the juicy income from dividend stocks...
Before we talk about generating income from mutual funds, let’s first expose their skeleton in the closet... fees.
These fees are called the M.E.R (Management Expense Ratio) and they can be nasty.
They range from 1% to a whopping 3% annually and are taken from your portfolio regardless of whether the market is up or down. Think about it for a moment... a 1% to 3% fee taken from your portfolio every year.
Say you’ve built your portfolio up to $100,000. These annual fees would range between $1000 and $3000 annually... ouch! Think about what this compounded loss to your portfolio would be over 15 to 20 years... I’m not feeling well
These fees WILL eat your returns and slow you down big time on the way to retirement.
Now for generating income...
Most mutual funds don’t generate any income. So to pay for living expenses, you will have to sell off a chunk of your nest egg to raise money. “Experts” recommend 4% as a safe amount to sell off annually while not depleting your portfolio.
The problem with this approach is it relies heavily on the market going up in value (aka capital gains). When times get tough, like the market crash in 2008, you’ll have to sell more to raise the same amount of money as when times are good.
If bad times stick around... well let’s just say it could do some damage. I'll take the top dividend paying stocks!
I’m sure you’ve heard your parents or grandparents talk about these. They probably didn’t have good things to say about them either!
What are they?
Bonds are debt instruments. You lend a certain amount of money to the government or a corporation in return for fixed interest payments. You get these payments regularly throughout the term of the bond and then you get your original amount back.
People mistakenly think bonds are safe because “the government ain’t going out of business”.
You’ll get paid but the payments will be fixed. They won’t increase every year.
What’s wrong with a fixed payment? Inflation.
Inflation is the increase in the cost of things we buy. Money is worth less and less over time because of it.
We’ve all heard stories from our grandparents about how much they paid for their first car or how much a chocolate bar used to cost when they were children.
Inflation is here to stay.
Fixed payments from bonds will be worth less and less as time passes as well. Then, when the term expires and you get your original amount back.... you guessed it – inflation took a nice bite out of that too.
Inflation loves to eat bonds! Bonds are not safe. They’re actually risky because there’s a good chance you won’t be able to grow your money ahead of inflation for retirement.
Unfortunately many people find themselves in this situation upon retirement.
You will not be one of those people if I can help it!
Ok now for the last of the weak alternatives to top dividend paying stocks.
Annuities are an insurance product where you purchase a future stream of “guaranteed” income for a certain amount of time.
You can choose a term, say 30 years, and if you pass away before the time has elapsed then the payments will be directed to your estate.
Another option is to have the payments roll in until you pass away (or until you and your spouse pass away). This takes care of the risk of outliving your stream of income.
On the surface, annuities might seem like a good option for retirement. The problem is that like income from a bond, the payments are fixed.
As we learned previously, fixed payments get eaten alive by inflation.
Now there are inflation-adjusted annuities but they will only pay you less now and a little more in the future.
Another kicker is that the income stream is only as safe as the company paying it! If the insurance company goes belly up, so does your annuity payments.
Talk about all your eggs in one basket!
One last thing... if passing on a legacy to your children or charity is important to you, don’t buy an annuity. You will be handing over your nest egg for a stream of income. Once that runs out... that’s it nothing left.
Ok I’ll bet you’re glad that’s over with.....phew. Thank goodness there’s a better option.
With top dividend paying stocks, you’ll be paid a safe and growing stream of income that will be miles ahead of inflation and you’ll be able to pass on something to your children.
You won’t have to sell off your nest egg to raise money, just live off the rising income. As the income stream gets larger every year, your portfolio will be forced to increase in value as well!
This income stream, when managed properly, will outlive you, your kids and your kid’s kids. You will learn how to manage your income stream from these dividend achievers later on...
So why don’t more people take advantage of this excellent way to become wealthy over time? Because the financial industry doesn’t promote it and they want you to think investing on your own is too complicated and risky.
I’m here to tell you it’s not too complicated and risky. Once you know what to look for in a dividend achiever, you’ll ask yourself..... Why didn’t I start this a long time ago? That’s what I asked myself.
Also, take a peek at this great article - Secure Income in Retirement From Stocks Paying Dividends
Ok let’s leave the financial services industry and their self-serving products behind and get into the nuts and bolts of top dividend paying stocks!
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