There is a big difference between being rich and being wealthy. Rich people make lots of money and spend lots of money. The illusion is that you have to be rich to be wealthy. Not true, the difference is that the wealthiest people I know all have one thing in common an instinct on how they spend their money.
A Wealthy person will look to buy top-quality shares and hold them forever. Rich person will look to spend their money on flashy houses, cars and trips as opposed to investing. The difference is that the rich person will need to continue to work to maintain their lifestyle while the wealthy’s lifestyle is maintained by the income from their investments. Work is an option.
A surprising number of people around you have share portfolios worth a million dollars or more, and almost all of them built these portfolios in the same way: these investors (or their parents) simply started buying good shares ten, twenty, or thirty years ago and just held on to them. To be this relaxed, you have to be perfectly certain about the quality of the assets you own.
Wealthy people instinctively buy the best things. They buy houses in the best neighbourhoods, because they buy in good neighbourhoods, they’re happy to stay for a long time. After ten or twenty years, no one, least of all the wealthy people themselves are at all surprised if these properties are sold for prices which deliver nice gains to the owners.
The wealthy select their shares in the way they select their houses. They insist on being comfortable with their share assets, because they’re going to live with them for a long time.
Consider National Australia Bank (NAB) which has been listed since 1962, and by 1986 it was an established operation which looked likely to stay in business for a long time. Even an experienced wealthy investor would have been impressed by NAB, and probably would have been happy to buy it.
Had you invested just, say, $20,000 in NAB in 1986, (at a price equivalent to about $4.00 per share) your holding would today be worth about $135,000. Even better, your $20,000 investment would now be producing dividend income of about $14,000 per year. That's right: it would now be paying you a franked dividend every year equal to more than half the amount you paid for your shares in the first place.
Since 1986 NAB has paid just over $35 per share in dividends, on your initial investment of $20,000 you would have received $175,000 in dividends over 30 years.
Twenty or Thirty years sounds like a long time, but time does pass, and it does you more good if you own stocks which pay growing dividends.
Because wealthy people have faith in their own judgement, they tend to overlook passing bits of bad news, and they tend not to fuss with their portfolios very often. The opposite sort of investor makes changes with every bit of news or gossip. I’m quite sure the confident, steady approach delivers far better returns.
You should recognise that time is passing whether you do anything about it or not. The trick is to put your money where the passage of time does you some good. You can choose today whether to be wealthier in twenty or thirty years or just to be older and no better off.
The key to building a massive stream of dividend income is the passage of time. Take steps now to start building a permanent and growing income.