How to Grow Your Investments: The Secrets of Reinvesting Dividends to Boost Your Income

That's it. You've made it. Your investments are bringing in enough cash and you're thinking, "But what am I going to do with all this?" ? This is already a good sign, you are on the right track, but the question is more subtle than it seems. Of course, it depends on you, your age, your situation, your expenses, your salary...

If you are already a rentier and you lack income, this windfall will go directly into your checking account to cover your needs. A working person in their thirties who lives well but no more will be able to afford a little extra, like inviting his wife to a nice restaurant. The important thing is to treat yourself. Money for money's sake is useless. Even a long-term investor may want to indulge in a little extra at some point. This is the great advantage of dividends: you can do what you want with them, over time..

However, those who made their fortunes on the stock market, such as Warren Buffett, do not like reckless spending: $100 saved today can turn into $1,000 tomorrow provided they are well invested. Reinvesting dividends rather than spending them can therefore prove very lucrative.

Wharton University finance professor Jeremy Siegel studied the importance of dividends in his book "The Future for Investors" (...). Between 1871 and 2003, Siegel found that 97% of the appreciation of stock valuations after inflation came from the reinvestment of dividends and only 3% from the increase in shares. Indeed, In bear markets, dividends act as a buffer against losses by generating income.. By reinvesting these, the individual shareholder will hold a greater number of shares, which will have a leverage effect in periods of market growth (...). Johnson & Johnson: purchase of 13 shares for USD 2,000 in 1980. Thanks to the divisions of the nominal value and the reinvestment of dividends, the investor holds 2,000 shares in 2007 for a total valuation of USD 140,000.

Source : http://www.bourse-investir.com/dividendes.html

Ok, all this is well and good you might say, but reinvesting 2% of dividends can cost a lot in brokerage fees. It's true. For this, the Americans, always ahead of "Old Europe", invented the sweet name of “DRIP” (Dividend Reinvestment Plan), allowing automatic reinvestment of dividends without fees. Unfortunately, DRIPS are not common on the old continent. We have nevertheless found some a worthy of interest, that of Novartis, appearing in the values to follow of our portfolioIt is aimed at people residing in Switzerland, France, Liechtenstein or the United Kingdom.

While this method is inexpensive and has the advantage of putting you on autopilot (avoiding decisions made under the influence of emotion), it nevertheless carries a risk. Indeed, by systematically adding to the same position, not only can you miss more interesting opportunities, but above all you potentially increase the risk of loss on this value. It is the eternal debate between the concentration dear to Warren Buffett and the diversification dear to Benjamin Graham.

The "lost decade" (2000-2010) showed us that Even large caps with a reputation for being solid can go bankrupt. (Enron, Lehman Brothers, Swissair) or near-bankruptcy (UBS). We therefore believe that despite all the good things we can think of a company, it is better not to put all your eggs in one basket. Not only do we avoid forming too emotional a relationship with a stock, but above all it forces us to stay on the lookout for new opportunities.

The idea is therefore rather to constitute a portfolio comprising several securities bringing in a regular inflow of fresh money. By combining the payments of these various securities, one can buy a new security at relatively reasonable costs. The other point is that by focusing on increasing dividends, the windfall available will be increasingly significant over time, which makes it possible to buy more positions and/or to further reduce the share of brokerage fees.