Dividend Investing: Income vs. Total Return

Dividend investing is favored for its income component, but total return, including capital appreciation, should be the primary focus in investment strategy.

### The Role of Dividend Investing in Achieving Total Return
* 📈  Dividend investing is beneficial as it provides an **income component** along with **capital appreciation**.
* 💰  However, focusing solely on dividend investing may lead to **missing out on opportunities for growth**.
* 📉  Investments with the highest current year income often tend to be **more conservative**.
* 📈 " I don't think it's an either-or, I think it's a **both-and**, and you should focus on **total return**.
* 💸  Similar to debt Crusaders who pay off all debt, some investors become too fixated on **dividend investing and the income component**.
* 🤖 " As long as we don't create the robots that kill us, humankind continues to want to **evolve and become better, faster, stronger**.
* 📈  Investing in the market through index funds is a **simple and powerful way** to participate in **innovation and growth**.

[Music] Uh, Jordan's question says, What do you think about dividend investing? What are the benefits of doing dividend investing versus regular index funds, assuming I'm still maxing out my 401k and Roth IRA? All right, I'm going to give you, uh, may I start this one? Yeah, sure, you're the CFA. What do we think about dividend investing? We love it. Why do we love dividend investing? Because we understand that investing has two components to it. There's an income component, there's a capital appreciation component. When I hear dividend investing to me, that just says, Hey, that's half of the equation. That's actually less than half, but there's a part of the equation there. There's nothing wrong with that. What I have issue with is when someone becomes so focused on dividend investing, they become so focused on only the income component of the things that they're buying, they end up missing out on a lot of opportunity. What we really care about and the way that we like to approach investing is we care about total return.

we want income coming into our investments. We want to have dividend yields. We want to have healthy metrics there, but we also recognize that capital appreciation can be so valuable. If I buy something for $10 today and it gives me $1 every year, that's great. But if I can buy something for $10 today and it gives me $1 every year, and next year it's worth $12, well, well now I've gotten both. I've gotten capital appreciation and dividend. So what I love about buying like index funds, if you go look at the S&P 500 Index, there is some component of dividend yield there. Now it's not going to be the same as if you're looking at specifically a dividend type mutual fund or something that focuses on those companies, but there is going to be a dividend yield, there is going to be an income component. I don't want people to get so caught up that they only focus on that one thing, 'cause what likely ends up happening is the types of Investments.

That often pay the highest yields, or the highest uh current year income, tend to be more conservative. So if you are a dividend investor, there's a really good chance you're going to have a pretty conservative portfolio, whether you're talking about the fixed income risk-off, risk-reduced side, or the equity risk-on side. So I don't think it's an either-or, I think it's a both-and, and you should focus on total return. Yeah, I think um, I know when we did some content on this once, people kind of were, means not the right word, but there were a lot of people 'cause they'll come out of the woodwork because this dividend investing, and I get it. I mean, I think it's it's no different, and go with me on this because this is probably the part going to get me in trouble, debt Crusaders, you know they pay off a credit card where they're paying, you know, 20% interest rate, and they get so excited because yes, that was detrimental, it was.

it was really hurting their financial future, and they get so excited that they then become debt Crusaders, and they start paying off a 3% mortgage, um, because they just want to be debt-free of everything. It felt so good to be debt-free on the credit cards, why not be debt-free on everything, and they just run with it. Well, the same thing I think can happen with dividend investing because what I see people posting all the time on social media is they're like, Man, I just got paid $500 in dividends. I'm going to do this in the next five years. I'm going to be up to $5,000 of dividends, you know. And then they keep posting, Before long, I'm going to have, I'm just going to replace 100% of my income, and they're focusing, they become so focused on that income component, exactly like you said, and missing out on the capital appreciation in the other part that it becomes the central part of their investment plan, hence the name dividend investing. I tell you that this is a

component of the solution. We love dividend investing, but it is not the solution. And that's why I'm a big fan, and you all heard me talk about this. And this also gets people riled up is that if you go research law of accelerating Returns, the level of innovation and all the things that are happening. As long as we don't create the robots that kill us, humankind continues to want to evolve and become better, faster, stronger. And we have this beautiful thing in this modern world we live in. We get to actually invest in that. Just buy the index F you instead of trying to beat the market. You are the market, and that is such a powerful, powerful thing that you can do it for practically free. It's very tax efficient, and I just love how simple that component is that I just don't want you to get sidetracked by dividend investing because it's so cool to say, hey, I just replaced three months' worth of my income because I bought this dividend investing.

because that will some people will start buying things that are either too conservative maybe too aggressive because there are games that companies play with their with their dividend strategies. I just want you to be aware of what the why is what are the components of how you're using your portfolio so you don't get sidetracked but we love dividend investing but it's part of the solution and it's not the solution so be be careful as you're analyzing that.

What The Money Guy Show Thinks About Dividend Investing...

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Dividend investing provides an income component, but focusing solely on it may lead to missed opportunities for capital appreciation.

Total return, including both income and capital appreciation, is crucial in investing.

Index funds, like the S&P 500, offer a balance of dividend yield and potential for growth, providing a more comprehensive approach to investment.

The Impact of Dividend Investing on Investment Portfolios

Dividend investing tends to lead to a more conservative portfolio, whether in fixed income or equity.

Some investors become so focused on the income from dividends that they overlook capital appreciation.

This singular focus on dividend income can become the central part of their investment plan, potentially impacting their overall returns.

Index investing offers a simple and powerful way to benefit from the law of accelerating returns and human innovation.

It allows individuals to be part of and benefit from the market's growth in a tax-efficient and cost-effective manner.

Unlike dividend investing, index investing provides a straightforward way to grow and evolve financially.

The Impact of Dividend Strategies on Investment Portfolios

Dividend strategies can lead to overly conservative or aggressive investment decisions due to the games played by companies.

It's important to be aware of how dividend investing fits into your portfolio to avoid getting sidetracked.

While dividend investing is valuable, it's crucial to recognize that it's only part of the solution and not a one-size-fits-all strategy.