Podcast – Is a Lack of Capital an Obstacle to Dividend Investing in Malaysia?
Here’s a question.
How much capital is needed to build a stock portfolio to earn RM1,000 in dividends a month?
Almost immediately, I can see that you might start working backwards.
If you are expecting 5% a year in dividend yields, the capital needed is RM200,000.
If you are expecting lower yields, the capital needed is more than RM200,000.
And, if you are expecting higher yields, then the capital needed is less than RM200,000.
But regardless, the capital required is still, by and large, in six-figures. Today, what if your capital is a lot less than six-figures? What if six-figures seem like a milestone to you? If that is the case, it is understandable to see a lack of capital to be an obstacle to building a dividend portfolio. It’s likened to running a marathon or hiking up Mt. Kinabalu. The feeling can be overwhelming.
The Paths to Six-Figures
After years working as an educator, I see three common paths taken.
The first path is to not invest altogether.
It is similar to looking up the majestic Mt. Kinabalu and just ditch the idea of climbing it.
The second path is to earn faster money with stock trading.
This usually involves studying charts and identifying patterns via technical analysis.
The third path is to speculate stocks.
For this path, the objective is similar to the ones taking the second path. But, the difference lies in their inability to spend time and understand charts, patterns and technical analysis. For them, their minds numb after looking at “too many screens”.
So, they take a detour by asking for stock tips, buy or sell on news and seek recommendations.
Overall, the three paths reveal two extremes.
On one spectrum, it reveals an emotion of fear of losing money. This emotion is also “packaged” with extreme conservatism, paranoia, risk aversion and a desire of safety and certainty.
On the other spectrum, it reveals greed, a desire for easy money.
Investing is Simple, But not Easy
You may have heard of this quote – investing is simple but not easy.
Why is that so? Isn’t simple the same as easy? Why can’t investing be simple and easy?
Here is another angle to it.
Is investing simple?
The answer is yes. Think about the logic behind earning dividends. It is about investing in stocks that can generate continuous growth in profits and operating cash flows so that they could pay out continuous growth in dividends. Most people have the intelligence (IQ) to comprehend this and acknowledge that this is doable.
Then, why is investing not easy?
Assuming you are starting with RM20,000 in investment capital. You invest in a few stocks that pay an overall dividend yield of 5% per annum. Of which, you make RM1,200 in dividends a year, which is RM100 a month in dividends.
How do we treat RM100 a month these days?
Rather petty isn’t it?
RM100 a month feels small and if you feel that way, you feel “small” about your investment.
It is hard to feel like “the Man” or the “Big Boy” with RM100 a month in dividends.
No high-fives from no one. No cheers or confettis. No postings on social media. Nothing.
So, starting investing with small capital can be “simple logically”, “not easy emotionally”.
I Was There Before
I had little capital when I was in my 20s.
Of which, I chose to take a seemingly “long but simple route” to six-figures.
Back then, I knew attaining a six-figure portfolio would take years realistically.
And more importantly, I was willing to go through this process.
So, the question is – Why?
Why invest to earn RM100 a month when it is better to 2X RM20,000 into RM40,000?
Here’s my personal answer as investing is a personal activity:
1. I was not brought up with a Rich Dad who has a blueprint to build wealth with stock investing. My father got burnt in the Asian Financial Crisis and never really “touched” stocks ever again. As such, I developed a belief that stocks are “risky investments”.
2. My beliefs evolved after reading Buffettology, a book that details Buffett’s investment style & approaches. My beliefs began to change and I realised that investing in stocks may not be risky. It is the adoption of a speculative mindset towards stocks that makes it risky.
3. Before I start investing, I realise that most things take time to accomplish. It could be learning Taekwondo (going from a White Belt to a Black Belt), reading a book (from Page 1 to Page 300), long-distance running, completing ACCA papers and so on and so forth. With this in mind, I had a greater tendency to dismiss “fast gains”.
4. Since I was new, RM100 a month in dividends – as insignificant as it seems – was okay as long as I can repeat this feat consistently and sustainably for the long run. It was my way of knowing that I have genuinely acquired real skills that can be practiced for life. So, hitting 2X with merely “beginners’ luck” isn’t something that I was aiming for.
The Exponential Curve
At first, it doesn’t seem that I have accomplished much.
I earned trickles of dividends, which I call “small recurring wins”.
I had some losses where I had derived some investing lessons from them.
Collectively, they may not seem much financially.
But psychologically, they kept me going. As I built my portfolio, I learnt more of myself, became more confident in my investing skills as I added more knowledge, experience and wisdom along this journey. Interestingly, the size of my portfolio grew to RM50,000, I came to realise that I’ve become comfortable with investing and it became second nature to me.
After that, RM50,000 to RM100,000 became easier.
That was the case after RM100,000 and beyond.
Since then, I was able to invest better and achieve better yields and greater capital growth. This is possible because I’m carrying with me the lessons, the skills, and the experiences of investing which were accumulated for years when I went from zero to RM100,000.
The Bigger Pot of Gold Lies After RM100,000
Generally speaking, investors tend to make better decisions after the RM100,000 mark.
So, if you are starting with anything below RM30,000, that’s okay.
RM30,000 to RM100,000 would serve as a period to sharpen your investing skills. It is also your place to gather invaluable investing experiences. They will serve as a foundation to success.
But, the key is not to rush it.
Rather, it is about surviving it. Hence, small wins which build confidence and positive character, not fast gains, will be preferable and more sustainable.
All in all, a lack of capital is not the real issue to dividend investing.
A bigger problem lies in a lack of patience.
Six-figure capital is not a prerequisite to building six-figure portfolios.
Six-figure portfolios are the result of years of persistence, discipline and emotional control.
At the end, the common path for most seasoned investors are as follows:
The first RM100,000 in our portfolio is a test of resilience.
Beyond RM100,000, the market would start to reward us for your skills and experience.
Announcement:
I have just launched Dividend Vault – my latest book. It documents my 10-Year Journey as an investor, which includes my background, 15 case studies of stocks that I invested in, successes, mistakes and lessons learnt from them.
Link: Dividend Vault Book
