The answer is:
‘If you could find a couple of stocks that offer 5% per year in dividend yield, you may invest RM 240,000 into them and thus, earning you RM 12,000 per annum, which in turn, works out to be RM 1,000 a month in dividend income. It is really that simple.’
But often, the problem is: ‘I don’t have RM 240,000.’
If this happens to be your problem too, that’s okay. You are definitely not alone. Like most, I come from a middle income family and certainly, I wasn’t presented with a sum of RM 100-200 thousand in ‘graduation gift’ to start adulthood. As a matter of fact, when I was in my 20s, I had little in my bank accounts.
Understandably, when I had <RM 5,000 in savings, RM 100,000 seemed big. For most in this situation, it is easy to dismiss the idea of investing. Lack of capital is or has become a stumbling block to start investing.
Fortunately for me, it wasn’t the case. I kept my faith that I could earn and raise capital for investments. So, despite me having little at that time, I began to read and study about investments. I may not afford a Nestle but I can still buy a book or two to feed my mind on investment matters.
Poverty in cash is one thing. Poverty in mindset is another.
Interestingly, as I study, I find many who decide to take a different path towards investment success. That path is as follows:
RM 12,000 + 100% = RM 24,000
Instead of 5% dividend yields, why not 2x money via capital gains?
After all, aren’t capital gains ‘bigger and faster’ than dividends? If we just go for capital gains, we don’t need RM 240,000 to make RM 12,000 per year. Rather, it is possible to make that money with just RM 12,000. Wouldn’t this be better for us?
If you think that capital gains are better than dividends, you are right. Today, for most of the investment world, success is measured based on capital gains. So, if you can buy an investment and sell it for a higher price, that investment is good and you view it as a success. Otherwise, you will view it as a failure.
This prompted many people to chase capital gains (not dividends).
The bigger and faster the capital gains, the more attractive the investments. For most, the desire to have more money (for nothing) is what causes people to get into certain investments, be it stocks, unit trusts, ETFs, properties, gold and also cryptos, without understanding them. That is how most people buy into certain investments even if they are crazily overvalued.
This is known as the Greater Fool Theory, which is a form of greed.
And greed has a cousin, which is known as fear.
RM 12,000 – 50% = RM 6,000
Many times, investments that could 2x one’s capital could also half one’s capital just as quickly. That is a brutal consequence of volatility.
If greed is about having money for nothing, fear is about losing it for nothing. In many instances, it is undesirable. Thus, if people could buy investments out of a belief that they could go up, causing a mania, the opposite will create a panic in the investment markets. A heightened fear will spook many to sell off their own investments at massive discounts, despite having solid fundamentals.
Greed causes people to buy investments when they are overvalued for they are chasing capital gains. Fear causes people to sell off investments at discounts for they want to avoid capital losses.
Instead of ‘buy low, sell high’, they end up ‘buy high, sell low’.
My Personal Journey as an Investor
Back to where I was in my 20s.
My income was low. But, I still kept my investment faith alive. With hundreds of Ringgit, I bought my first stock. Soon, I bought my next. Instead of aiming to get 6-figures quickly, my initial goal was to build a RM 10,000 stock portfolio, where my aim is to have 100% of my stocks paying dividends on a regular basis.
Once I made it, I raised my target to RM 25,000.
Then, with higher income, the target was raised to RM 50,000, RM 100,000 and beyond. Today, I still earn dividends from all stocks that I invested in. This whole journey may seem ‘slow’ to some. But, I would say it is necessary to all who like to build themselves a 6-or-7 figure stock portfolio sustainably.
This is because what makes the investor wealthy is not just his capital. Rather, it is his skills, knowledge, experiences, emotional intelligence, network, and so on and so forth that make him a success. I wish there is a shortcut for you to get all of them. But so far, there is none (except for capital, if you are well-connected).
Without the above, it is difficult for you to build a sustainable portfolio that can pay you dividends year-after-year, despite you having 6-or-7 figures in capital. It is possible for ones who have the 6-or-7 figures to waste their capital away with irrational trading or speculation in the stock market.
After all, a financially illiterate person with money is money soon parted.
The Hardest Step To Earning RM 1,000 a Month in Dividends
Personally, it would be to hit my first RM 25,000 in stock portfolio.
Actually, once I had a RM 25,000 portfolio, expanding it to RM 50,000 is simpler and more profitable. Then, my journey from RM 50,000 to RM 100,000 is easier as I had accumulated years of experiences, knowledge, and insights to do so. So here, I would say that the tipping point for me is hitting the first RM 25,000.
To get started, you may check out my free training at the link below:
Link: How to Build a Stock Portfolio that Pays Increasing Dividends?