How to Start Investing in Dividends Without a Lot of Money

by Miranda Marquit · 0 comments

Lately, I’ve been dabbling a little bit in dividend investing. Many people are surprised at this because I’m such a boring investor. The bulk of my investing happens via indexing, so investing in dividend stocks seems a little out of character for me. However, once you realize how easy it is to invest in dividends — and how you can do it with a small amount of money to start — you might be willing to give it a try yourself.

Dividend Index Funds

If you know me at all, it’s no surprise that my dividend investing strategy involves indexing. (You didn’t think I’d be stock-picking, did you?) There are plenty of dividend index mutual funds and dividend index ETFs out there. These investments are low-cost, with low fees. In some cases, depending on where you purchase your shares, you might be able to avoid paying transaction fees when you make your purchases.

Not only are dividend index funds inexpensive, but it’s possible to start investing in them with a relatively small amount of money. You might be able to open an account with a brokerage with a minimum of as little as $500 to get started. And, if you’re willing to agree to an automatic investment plan and invest a set amount of money each month, you might be able to start dividend index investing with as little as $100 a month.

Dollar Cost Averaging

One of the best long-term investing strategies for those of us without a great deal of wealth is dollar cost averaging. With this investing strategy, you invest a set amount of money each month. Your money buys as many shares (and sometimes partial shares) as possible. So, if a share of an index fund costs $75, and you invest $100 each month, you buy 1.5 shares. Of course, during months when the market is struggling, the price will go lower, and your money will buy more shares. Later, as the price goes higher, your bottom line benefits because you have a larger number of shares, bought when prices were lower.

Over time, the market tends to gain. While there is always the possibility that the market will lose someday and never recover, that has yet to happen.

With dividend investing, this strategy works well because you are paid dividends on your index fund. I have arranged for my dividends to be paid back into my account, to buy more shares when they are paid. This means that my portfolio grows at an even faster rate. As you reinvest your dividends and keep using dollar cost averaging to buy more shares, your dividend payouts increase because you have a higher number of shares. The cycle repeats itself over time, helping you build up. If you have two or three decades to let your money grow, this can be a great way to boost your wealth.

In the end, there’s no need to pick stocks or come up with a large amount of capital if you want to be a dividend investor. You can get started with a relatively small amount of money, and use index funds to reduce your risk. As long as you are consistent, you will be surprised at how much wealth you can build over time.

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