I love dividends, but I make the assumption that people have some funds before they get started. Whether the funds are the holding pen where they accumulate money to invest, or they have funds in their company 401K as their first adventure in investing.
In my book, I recommend individual stocks because we’re looking for conservative companies that value their dividends enough to increase them every year. However, I also talk about diversification by looking at your investment strategy in an holistic way — it involves your 401(k)/IRA, your home, you emergency cash savings, etc.
Some Jim Cramer brilliance
I came across a great way to express this in a recent Jim Cramer interview. The interview is a great read — especially the beginning where he talks about parenting and the differences from when he was growing up.
Here’s a quote about how he thinks people should get started investing. I agree in principle:
In the last five years, what I’ve been saying is, “OK, I want everybody to own an index fund, and until you have $10,000 in an index fund, I don’t even want you to think about a single stock. There’s too much single-stock risk.” So everybody has to have an index fund, and for your 401(k) and your IRA, I would really prefer you to have an index fund. And when you finally have enough mad money, we can build a diversified portfolio, five, six stocks, but … this was hard-fought for me to do.
Elephant’s Paycheck differentiation
The most important thing about the Elephant’s Paycheck is creating a successful habit for building wealth.
I take one approach to investing that uses Dividend Aristocrats as a way to filter down to about 50 different companies that are on the conservative side, and also provide increasing dividends. Reinvesting dividends compounds the power of your investing over time. It’s a powerful advantage.
Dividend reinvesting, Dividend Aristocrats, compounding — these are tactics. To have a complete book, I had to pick some tactics to create a complete plan for people who need a complete solution explained to them.
The important differentiators provided by Elephant’s Paycheck are the metrics I use to change people’s perspective. Through these metrics we can change people’s experience investing. The metrics are designed to reinforce the behavior I want people to develop — long term investing and wealth building through the market’s ups-and-downs.
How to get started
If you’re looking to get started from scratch, even before you look for individual stocks, remember Stash (link is to my review of the app).
Stash is an easy way to get started investing, especially if you’re starting with a modest amount of money. It’s also great if you want to invest in alignment to your social values.
Don’t forget: if you want an easy to read, authentically human investing book have a look at The Elephant in the Room has a Paycheck (available as PDF today, Amazon/iTunes in Q1 ’16). Reading it is a great way to kick of healthy money habits in 2016.