DIVIDENDS VS CAPITAL GAINS

We discussed this in detail on my #KemetInstitute call about investing 101. Thanks to everyone for joining! We had 200 people on the call and over 50 who couldn’t get access because of capacity. So let’s break this important point down for everyone! ⠀⠀

⠀⠀⠀⠀⠀⠀⠀
There are only  TWO ways to make money from investing:
1) Dividends: Think of this like “dividing the ends” or sharing the profit. If profit is $10 and ten people own one share each then everyone gets $1/ ownership unit or share. Sometimes fast growing companies like tech stocks decide to reinvest that profit to grow the business faster so they don’t pay a dividend. Instead you can make money from…
2) Capital Gains: Buy low sell high! When you sell a stock for higher than you paid for it the difference is called a “capital gain” or “capital appreciation.” Think about when facebook went public and it dropped down to $18/share. It’s in the low 200s now so you could have made 200 for every share you owned! You can have “realized gains” (after you sell and cash out) or “unrealized gains” (paper gains but not cashed out yet). ⠀⠀⠀⠀⠀⠀⠀⠀⠀

For most people the goal is to max out your 401k or IRA over 30 years, increase the capital gains, reinvesting the dividends and live off the interest when you retire.

Quick insight on why people with lots of money go broke: they’ve been convinced that the only goal for their money is to save it. But when they stop making that money, there aren’t sufficient dividends or capital gains, maybe 1-2% returns and they can’t live off 1% of their savings each year (unless they are super frugal or have over $50mil!). Instead, they spend principal. Slowly but surely it goes to zero. The goal for everyone is to get your passive income (dividends and capital gains) to EXCEED YOUR EXPENSES. Play OFFENSE and DEFENSE. Own stocks, bonds, real estate, tech, small businesses and replace that earned income with passive income before you spend it all! Ask any questions below!

    Write a comment