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There are many ways to try to earn extra income. Everyone will have their own approach, but buying dividend stocks seems like the easy way to go for me. Here’s why.
What do I look for when I want to increase my income? I want three main things.
What I want
I don’t want to overwork. If I could spend an hour or so when I wanted to, and not leave the comforts of home, that would be great.
Then I should be able to invest as much or as little as I like, whenever I want. I just don’t have much money to spend. And I can’t commit to a fixed monthly expense.
And I wanted a method that had a long track record of success. I don’t need to take earnings now. No, my goal is to make a good pot over the long term. And then I’ll start withdrawing cash when I retire.
long term success
Over the past 10 years, ISA Shares and Shares have earned an average of 9.6% annually. It even beats inflation right now, and not many savings schemes can do that.
But in 2019-20, we will lose an average of 13.6%. So cash in stocks for a year can mean some pain. But for 10 years, it looks much better.
Years like 2020 do come. But UK stocks are already back to where they were before the pandemic.
And research by Barclays has shown that the longer we leave our money in the stock market, the better chance we have of beating other forms of investment.
Why dividend stocks?
For the long term, any stock that generates good total returns will do too. But I prefer the one with good dividend yield.
When I see cash, I know it’s the true test of a company’s performance. That is, if it is covered by income. Even if I buy more stock with cash, I think I’m getting more security from a mature dividend payer.
And if I need a little cash one year, maybe for a little vacation spending, I can save it from my dividends.
Easy and cheap?
I had to put a lot of effort into working out my strategy. But because I choose high-quality dividend stocks, I don’t have to do a lot of work making my choice. So it’s pretty easy for me.
To understand trading costs, I buy at least £500 once, and £1,000 or more is better. But I can put a small amount of cash in my Stock and Stock ISA and keep it there until I have enough to buy.
Stocks and shares are not for everyone, and each of us must think of our own approach to risk. But for me, to build a long term passive income pot, I see no better.