Considered that the dividends earned is little when you started investing young with small capital. Is it still worth to start early? - Seedly
 

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Asked by Anonymous

Asked 3d ago

Considered that the dividends earned is little when you started investing young with small capital. Is it still worth to start early?

Just started investing and got myself some stocks in small quantities. For the dividend payout is only $14-$25 only. Is it still worth for me to start early with small capital? I would like to build a war chest too, but for me. Money not seen is money not spend so it’s rather hard for me to build one.

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Sudhan
Sudhan
Level 5. Genius
Answered 3d ago

HI anon, I would definitely say it's worth investing as early as possible for the long-term to let compounding do its wonders. Granted, when you start off, the dividend you receive might just be a trickle. But as you gain experience and knowledge, and earn more, and invest in more dividend stocks, your dividend would grow over time.

The benefit of compounding our money early over the long-term is shown in one of the Dow Theory Letters, entitled Rich Man, Poor Man.

Say there are two people, Ah Tan and Ah Lee.

Ah Tan starts investing at the age of 19. He invests $2,000 every year from age 19 until 25 and stops thereafter. That means he has put $14,000 into the stock market.

On the other hand, Ah Lee starts investing only at the age of 26. From age 26 until 65, he invests $2,000 annually in stocks. By the time he turns 65, he has contributed $80,000 to his portfolio.

Assuming both investors can generate 10% yearly on their portfolios, whose portfolio would be larger at age 65?

Most would think that Ah Lee would have a bigger portfolio. Yes, Ah Lee indeed has a larger portfolio at $973,704 while Ah Tan’s portfolio would be worth $944,641.

However, here’s the fun part.

Ah Tan wins overall as he has higher profit of $930,641 versus Ah Lee’s $893,704. Remember that Ah Tan had only put in $14,000 over seven years, while Ah Lee contributed $80,000 over 40 years. For more on the benefits of investing early, you can check out Seedly's article at https://blog.seedly.sg/start-investing-early.

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Hi anon,

I can tell you that I started on my unit trusts with $1000 a long time ago. My dividends were $4/mth. But I still persisted and added to my position slowly over time.

Today my UT dividends are 3 figures monthly, and I'm just ploughing them back into the fund to continue compounding since I do not need the cash flow yet.

Now, imagine if I started doing this 5 years earlier? I might be approaching a 4 figure monthly dividend income by now.

Sudhan's story of Ah Tan and Ah Lee is very applicable to even a 3% growth rate. Investing $200/mth for 15 years from 20 to 35 at 3% and then stopping, will generate the same portfolio size at age 65, compared to investing from 35 to 65 at the same $200/mth and 3%. The difference is that the person who started at 35 had to put in twice as much. And we're talking about a 3% growth rate here, which is a very achievable figure. So start early. Even I regret not starting earlier, so take it from me.

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Junus Eu
Junus Eu
Top Contributor

Top Contributor (Nov)

Level 9. God of Wisdom
Answered 3d ago

DEFINITELY, because of compound interest.

Not only that, you start investing in your financial knowledge from a young age.

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Bjorn Ng
Bjorn Ng
Level 6. Master
Answered 1d ago

Hey buddy, definitely worth it.

It's exactly like planting a seed. After planting, you have to water it (i.e, load up on the stock at the appropriate valuation). It takes time, but once it becomes a flower (i.e your stock is at a sizeable amount), that is where you reap your fruits of labour. Definitely and 100% worth it.

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Adelyn K
Adelyn K
Level 5. Genius
Answered 1d ago

Probably better to go into ETFs over buying stocks, $100-$200/month will net you some good dividends over a period of 2-3 years of investing. Small gains since the ROI is only 2+%, but better than nothing.

You can also consider investing into your CPF-SA/MA to get 4% interest that compounds yearly too. But you don't get visible dividends into your bank account and only see it when you retire.

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Sanchit
Level 5. Genius
Answered 1d ago

Yes, its actually a fair concern.

But its not only about making money - its also about how you make it. For sure, you will make some wise decisions and some not so wise decisions.

The advantage you get with starting early is more that you make your not so wise decisions with less amount and hopefully protect yourself from those at a latter stage when amounts are more significant

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Bibiana
Bibiana
Level 3. Wonderkid
Updated 2d ago

I hope this graph answers everything for you.

When you're starting with a small capital, it's ideal to lower your brokerage cost as much as possible, otherwise your returns will get eaten up.

FSMOne and Standchart starts from $10 (compared to other brokerage houses, which is around $25). ​​​

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Kian Chee

1d ago

This is so helpful 👍
V
Varun
Level 3. Wonderkid
Answered 3d ago

The earlier you can start your investing journey the better. The power of compounding together with reinvesting your dividends and regularly investing your savings will give your portfolio growth that you never imagined could be possible in as short as 5 to 8 years time.

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Choon Yuan Chan
Choon Yuan Chan
Level 7. Grand Master
Answered 3d ago

You got to start somewhere to grow your wealth. So start when young. Furthermore, you make mistakes so learn it when young

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Yes start early!

At first dividend is very small but invest constantly and regularly, it will start to grow.

Aim small, like make a goal to cover mobile phone bill with dividend, then later aim for bigger passive income!

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Wilson Nid A Break
Wilson Nid A Break
Level 6. Master
Answered 3d ago

万丈高楼平地起, its common sense that if you start small, your rewards will be small, in the absence of leverage and/or high risk undertaking.

The key is time, discipline & perseverance to allow the the compounding effect to work its magic.

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No Anon you're absolutely right.

If you're investing for dividends only, it is discouraging to start early with a small capital. 10k @ 5% is only 500 bucks per year. Something you can earn in just a weekend.

So instead, invest for growth. Whatever coupons or dividends you get right now, reinvest it. Compounding growth will help you quickly get to a portfolio big enough for dividends to make sense. 100k @ 5%? Now that's 5k per year. Pretty much an extra month's salary. Now we're talking.

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Heah Min An
Heah Min An
Level 4. Prodigy
Answered 3d ago

If not now, then when?

I’m 35 this year and I implore you to take a step back & consider the following:

A. What is your big WHY?

My current portfolio is building a retirement income portfolio for my parents. You’ll have your own WHY, so figure it out so that you stay rooted to your cause.

B. Generate wealth over time by..

starting off with the right attitude: Save before I spend.

I set aside $1000 each month for building my war chest.

It’s not the absolute amount.

It’s the attitude towards money for even bigger amounts of $ serve no use in the absence of right attitudes.

Each round of dividends that I receive has 2 portions:

A. Invest back to grow my war chest

B. Happy food as leisure

I only started B 2 years ago. I started investing 10 years ago. Make time our friend.

& oh, invest time into learning your preferred investment tool. Mine’s value investing.

I don’t have a full context of your background thus please tweak my suggestions accordingly.

Thank you for reading my post.

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You can do UT which offer reinvestment of dividends (ie buy additional units) which can get you started on the compounding which is long term good. They charge as a percentage so smaller amounts still viable (compared to say ETF which has costs and min 1 share purchase)

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You will need to understand your investment objective, and how long you are willing to stay invested.

Some of the shares will have capital appreciation in addition to the dividend. As a result, you will be rewarded with a higher share price should you sell the share in the future. This is on top of the divided that you will be getting along the way.

The best way to start building your portfolio is to understand your cashflow. Here is a guide that you may find useful: https://www.blog.pzl.sg/understanding-your-personal-cash-flow/

After understanding your finances in detail, create a budget for your investment purpose. This is how I do mine: https://www.blog.pzl.sg/how-to-create-a-monthly-budget/

Over time, you will be able to increase your cashflow into your investment as intended.

Here is everything about me and what I do best.

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