There is an old folk tale about the Tortoise and the Hare.  “The story concerns a Hare who ridicules a slow-moving Tortoise and is challenged by the tortoise to a race. The hare soon leaves the tortoise behind and, confident of winning, takes a nap midway through the course. When the Hare awakes however, he finds that his competitor, crawling slowly but steadily, has arrived before him. (Wikipedia)”

You may wonder how the tortoise managed to win, but in winning, the tortoise teaches an extremely valuable lesson that can be applied to investing.   Although slow moving, the tortoise won the race because he relied on persistent, stead, continuous, committed action to reach his goal.  This piece of folklore is a great way to motivate new investors, like YOU, to stay the course.  Investing is not a sprint, it’s a marathon.

Education:

In investing, you will encounter and may even be intimidated by many Hare-type people.  I define these individuals as investment savvy, affluent, well connected, well informed, and so forth.  Sure, they may have more money than you, they may have been taught the principles of investing before you and they may already be wealthy, but that does not mean that you cannot win the race of investing.  Many Hares will burn out, they win gamble big and lose because slow-moving activities are boring to them.  They thrive off of excitement.  This is where YOU, the tortoise, can WIN!

There are two methods of investing that involve slow and stead action – Dollar Cost Averaging and Dividend Reinvestment.

Dollar Cost Averaging (DCA)

The Dollar Cost Averaging method is investing a small amount of money regularly over a period of time.  For example, if you invest $100 every month from your paycheck, eventually that pool will grow into a large pool of resources.  This strategy is the best method for new investors.  Don’t believe that you have to move quickly like the Hare, be the proud tortoise because you can still win using this strategy.  Sure, it will take you longer, but remember that this is not a race.

Dividend Reinvestment Plan (DRIP)

The Dividend Reinvestment Plan method enables you to build up the number of shares over an extended period of time.  In Lesson #15, we discussed dividends and picking stocks that pay dividends.   I also told you that dividends were paid in two ways, via cash or stock.  Instead of receiving cash outright, some companies allow you to use your dividends to purchase more shares in their company. That’s dividends on dividends.  For example, if you are in a DRIP, when a corporation pays its dividend to you, instead of them giving you cash, they will use that money to buy additional shares.  Let’s look at an example.

“Let’s say that Mary Johnson owns 1,000 shares of Pepsi. The stock currently trades at $50 per share and the annual dividend is $0.88 per share. The quarterly dividend has just been paid ($0.88 divided by 4 times a year = $0.22 per share quarterly dividend). Before she enrolled in Pepsi’s dividend reinvestment plan, Mary would normally receive a cash deposit of $220 in her brokerage account. This quarter, however, she logs into her brokerage account and finds she now has 1,004.40 shares of Pepsi. The $220 dividend that was normally paid to her was reinvested in whole and fractional shares of the company at $50 per share. (Dividend.com)”

This strategy may not be as sexy as cashing a check, but your stock portfolio can go from nothing to something over time.  This is another method of SLOWvesting!

 

Be a proud Tortoise!  You can do it…you can WIN!

Resources: 

Dividend.com – Internet source for dividend investing.

The Motley Fool  (www.fool.com) – The Motley Fool is a multimedia financial-services company dedicated to building the world’s greatest investment community.

 Important terms from this lesson:

Term	Definition
Dollar Cost Averaging	The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.
Dividend Reinvestment Plan (DRIP)	A plan offered by a corporation that allows investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment date.

 Action Step:        Watch and Read!

1. Go to http://bit.ly/1cZZmKw and enter your email address to receive a free report entitled, Secure Your Future With 9 Rock-Solid Dividend Stocks.  Use the report to learn some strategies about how to pick dividend paying stocks.
2. Click to watch the video, What is a Dividend?