Why I Invest in the Stock Market?

The earliest recollection I have with the stock market is when I was already in college. I may have heard it in high school and on TV but didn’t pay too much attention to it.

Growing up my parents know nothing about it, so were my teachers, my close friends in college, and in my early working years abroad.

Subsequently, all I can recall is that the stock market was only for the rich and wealthy. Once you invest in the stock market you are a shareholder of a big company. That’s all I understand about it and stop from there.

For instance, I read a lot and inquisitive but I really don’t know why I didn’t find time to learn about the stock market while I was younger, in spite hearing it most of the time. Perhaps I wasn’t really interested during those times and have not met any mentors to guide me.

Finally, It was only in the last 8 years at least, that I was interested in the stock market. Little that I know that it will change the way I think and handle about investing.

There are a few ways people make money in the stock market

1. Stock Trading = It involves buying and selling stocks frequently in an attempt to time the market. In simple terms: buy and sell on a profit. There may be a few who claimed that they have been successful doing trading but it’s something that personally I would not recommend. For this  reason, I won’t consider it as investing.

2. Index Fund = is a mutual fund that tracks the performance on an index such as S&P 500, Dow Jones Industrial Average (DJIA), NASDAQ Composite and many more. They are run by portfolio managers who are trying to beat the performance of an index. Thereby, the cost of owning an index fund is reflected by what is called Management Expense Ratio (MER) which is typically 1-2%.

3. Exchange Traded Fund (ETF) = ETF’s track the same indexes as an index fund but can be traded like a stock. The main difference between the two is its cost. You may find Management Expense Ratio (MER) on ETF’s which are less than 1%.

4. Common Stock Investor = These are investors who buy and sell common stock through an online brokerage. Most of these investors are DIY or self-directed investors. They do their own research, set their own fundamentals and criteria before buying common stock.

These investors are further classified into two:

4.1 Growth Investors = These are investors who seek companies that have strong earnings. These companies may have a high Price to Earnings (P/E) ratio and may or may not pay dividends.

4.2 Value Investors = Are Investors who seek stocks that are undervalued in the stock market and most of the time these stocks pay dividends.

How I end up which investor I become?

As you can see, this is almost the exact chronological order, how I learned to invest in the stock market. Early years of my stock market experience I was also a trader.  I was trying to beat the market by buying stocks that I thought were cheap and sold my positions when its share price is up.

Immediately, I felt that excitement when I made some money.  But happiness was only temporary as it doesn’t translate to regular income or cash flow.

Meanwhile, I have also invested in index funds and ETF’s briefly but the fees shun me away from these products. Over time I evolved myself. I’ve taught myself and read books on dividend growth investing.

Becoming a dividend investor

Once I’ve done my initial research and company’s fundamentals met my criteria, then it triggers a buy and hold. I no longer monitor my stocks on a daily basis. Only when it’s time my dividends are due to be paid when I checked my brokerage account as I will immediately reinvest all those dividends. This is how exactly compound interest works in investing. Your money is working hard for you. I will only sell my positions when it no longer meets my criteria.

Long-term investor

Every investor has its own strategy and goals. I am investing long haul. However, since I’m already late in the game, I am concentrating on increasing my monthly dividend income. Hence, I picked most of my equities that pays monthly dividends and reinvest all dividends regularly.

What I like about monthly dividend income is that you can easily organize your budget well.  More so, when you retire and stop working as expenses comes out regularly on a specific date such as mortgage or rent, insurance, and utilities.

Following this, I am trying to mimic my working years receiving salary bi-weekly or twice a month hence I pick companies that pay dividend every 15th and some at the end of the month. This will make life easier with budgeting as opposed to companies that pay quarterly dividends. (I am tracking and updating my monthly TFSA dividend income.)

Majority of my holdings are monthly dividend payers. However, this doesn’t mean that I didn’t own quarterly paying dividends in my portfolio.

Finally, it doesn’t also mean that I won’t change my strategy in the future. In short, this strategy works really well for me and noticeably compound interest works quicker monthly as supposed to quarterly dividend reinvestment.

My Final Thoughts

Once I’ve learned passive income through dividend investing, I’ve never looked back. I like to study and research individual stocks, read financial statements, and set my own fundamentals.

In summary, choosing quality dividend growth stocks that are sustainable and meet my own fundamentals are now the mainstay of my strategy for increasing my monthly dividend income. My ultimate goal is to live off it’s dividends without harvesting its capital.

I love to hear what type of investor are you and what are your investing strategies? Please feel free to ask and leave a comment below. Thank you for reading.

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Ricky Formiento
Ricky C. Formiento
3 years ago

Good luck Mel

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