How to Start Dividend Investing When You Have Little Cash

How to Start Dividend Investing When You Have Little CashIf you want to build long-term wealth, investing is one of the best options. To really super-charge your efforts, though, dividend investing can be a great option. With dividend investing, you have the chance to reinvest what you receive in payouts, essentially getting more shares for free. On top of that, later on, your dividends have the potential to become a significant source of income for you.

Dividend investing now can help you build your portfolio faster, and then when you are ready to retire, you can use dividends as income. Not only that, but dividends often receive favored tax status. As of this writing, in both the Canada and the United States, dividend investing comes with tax breaks. Any time you can see tax breaks for your investments, it’s a chance for you to grow your wealth even more efficiently.

But, even if you know that there are benefits to dividend investing, how can you take advantage of these opportunities? Many people think that they need a lot of money to make dividend investing work for them. After all, if a company is paying out 25 cents a share, you aren’t going to see a sizable payout unless you have the capital to buy a large amount of shares.

The good news is that it doesn’t have to be that way. Dividend investing can be done, even if you don’t have a lot of money. Thanks to dollar cost averaging and dividend reinvestment plans, it’s possible for you to start investing now, no matter how much (or how little) money you have.

Start With a Dividend Index Fund

When you have a small amount of cash, you aren’t likely to be able to buy a lot of shares of solid dividend stocks. This is where indexing can help you. Investing in an index fund gives you instant diversity, there are usually low costs, and you can take advantage of a general trend for the market as a whole to rise over time, in spite of short-term losses due to volatility.

A dividend index fund is one that follows a variety of dividend paying investments. You can choose from high-yield funds, aristocrat funds, or funds filled with dividend stocks from different countries. Most online discount brokerages offer access to dividend index funds. Not only that, but you can usually buy fractional shares if you set up an automatic investment plan.

The ability to buy a portion of a share of a dividend fund is very helpful to the beginning dividend investor of limited means. You can set up a plan that deducts $100 from your account each month and uses to purchase as many shares as possible at the current market price. So, if a share of the dividend investment fund costs $75, your $100 can buy you 1.25 shares. The next month, your $100 buys however many shares it can, and you keep growing your portfolio.

Dividend index fund shares, purchased using an automatic investment plan, is one of the best ways to start dividend investing when you don’t have money.

Automatically Reinvest Your Dividends

A dividend index fund will result in regular payouts of dividends to your account. One of the best things you can do is give your discount broker’s automatic investment plan the ability to automatically reinvest your dividends. Whatever dividends you receive will go toward buying more fractional shares of your fund.

As you continue to use dollar cost averaging to buy shares, and as your automatic reinvestment adds more shares over time, your dividend payouts will get bigger. And, as your payouts get bigger, you will be able to buy more shares with your dividend reinvestment. You can see how the cycle feeds on itself and continues to grow your portfolio.

Over time, as your income increases, you can put more money toward buying dividend investments. You can sell some of your fund shares to purchase individual equities, or diversify into REITs. As you progress, it’s possible to change up your strategy, slowing continuing to build your portfolio and your nest egg.

The most important thing is that you start as early as you can so that you have time on your side. With the accessibility of investments, and with the different options you have now, it’s easier than ever to start investing in dividends, even if you don’t have a lot of money.

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Do You Ever Invest With Your Conscience?

When it comes to making money through investing, it’s hard to take a step back and ask if what we’re doing is harmful to the things we hold dear. It’s much easier, with the things we see every day, to make choices that lead to more sustainable living. You are more likely to take steps to reduce energy and water consumption, and to buy fewer things (and avoid packaging waste) because you can see the practical effects each day.

With investing, though, the concept of sustainability and living up to your ideals is much more nebulous. This is especially true if you are investing in funds. You buy shares in a fund with a description that meets your long-term investing goals, but you don’t really think about what companies that fund is composed of.

As you make your efforts to live more sustainably, does that include investing according to your conscience?

What Companies are You Supporting?

One of the arguments for socially responsible investing is that your money is tacit approval of what’s going on with a company. So, if you invest in a company that hires child labor in unsafe working conditions in third-world countries, you are, in a way, condoning that work. At the very least, you are profiting off the fact that the company’s profit margins are wider because of their labor practices.

Of course, if you don’t care about child labor and working conditions in other countries, it might not matter to you how a company makes its money. However, you might be interested in the environment, wildlife protection, abortion, or women’s reproductive health. Perhaps you are worried about equal rights, and don’t wish to support a company that denies basic rights to others based on gender, sexual orientation, religious affiliation, race, or some other characteristic.

Some investors aren’t as concerned about individual practices as they are about overall values. Does the company represent something that you agree with? Does the company’s philosophy and mission statement reflect your own personal values and conscience? And if not, are you comfortable with the idea that the company might engage in activities that go directly against your own conscience?

Are You Really Supporting Companies When You Buy Investments?

Some investors point out that, when you buy stock through an exchange, rather than via direct investment, you aren’t really doing much to benefit a company as it is. Instead, you are making an exchange with another party. You aren’t buying from the company; you are buying from another investor.

In some cases, funds and ETFs don’t actually directly invest in companies. Instead, they follow the companies and the performance of the fund, or the index fund, is based on how things are going with the included investments. But it’s not a direct investment.

Even when this is the case, some investors aren’t comfortable with the idea of profiting off companies that don’t fit their values.

What Do You Think?

The idea behind socially responsible investing is that you look for companies, funds, and other investments that reflect your values. This means that, before investing, you think about what matters to you, and how you feel about certain issues. Then you decide what you want to support.

Investing with your conscience is about trying to feel good about the way you make money through investing by focusing on assets that align with your values. So, if you believe that renewable energy is important for the future, you make it a point to, rather than invest in companies (and funds that include companies) that profit off fossil fuels, buy shares of companies and funds that support renewable energy projects. There are also those that won’t buy shares of companies that support embryonic stem cell research because it goes against their ideas of what’s moral and important.

One of the difficult things about investing according to your conscience is the fact that, in some cases, these companies might not be making a lot of money right now. It could take years for your investment to pay off — or it might not pan out at all. Meanwhile, the tried and true companies that engage in practices you don’t agree with continue to see gains. It can be frustrating for many investors.

What do you think? Do you invest your conscience? Does it work out for you?