The 5 Levels of Dividend Investing
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One of the biggest problems that many people have with dividend investing is that it’s a slow burn. Unless you somehow come into a large lump sum of money, building lasting wealth through dividend investing takes a long time.
With that, the journey of a dividend investor unfolds in stages, with each one marking a milestone in the pursuit of financial freedom. In my own brief investing experience, I've found that there are five levels of dividend investing, and we all start at level one.
Level 1 (The Awakening)
Before I started investing, I found myself trapped in a job I couldn’t stand and was looking for a way out. This is when, almost by chance, I stumbled upon dividend investing.
Although I was familiar with the idea of investing, and had dabbled in it here and there, I had no real idea of what a dividend was. In hindsight, I feel like the universe knew what I needed at the time and served it to me on a silver platter because when I finally started learning about dividends, it was like a lightbulb turned on in my head, and I was finally awake.
In dividend investing, I found my escape plan. I was tired of being told what to do and I was tired of having to answer to other people, especially when it came to this job that brought me more stress and frustration than anything else.
It made me realize that I wanted more control over my life and my time, and dividend investing was how I would get it. This was my first inkling of a light at the end of the tunnel.
While everyone has a different way of finding their way to investing, I think most investors are motivated by a similar longing for freedom and independence. We’re all after the same thing here.
At its core, investing is about liberating yourself from having to rely on others. It’s about acquiring total ownership of your time, which is only made possible when you have a sustainable (and growing) source of income that you don’t have to trade time for.
At any rate, this awakening marks the inception of your investing journey. You’re ready to start walking toward financial freedom, and you couldn’t be more excited about it. Everything is new, and there is so much to learn.
While investing is a lifelong pursuit of knowledge and wisdom, you’ll inherently learn a lot of the foundational stuff within the few years of your investing journey, even if you’re starting out with no prior experience.
Then, once you’re in the swing of things and have found your groove, you’ll make the transition to the second level of investing, known as the "boring middle."
Level 2 (The Boring Middle)
In essence, the “boring middle” is the point at which the honeymoon phase is dwindling down. What was once new and exciting becomes normal and routine.
At this point, you should have a pretty solid grasp on a lot of the foundational elements of investing. Here, you’re probably pretty well established with your portfolio and have a collection of holdings that you think will be good to own for the long-term, and you’re making regular contributions to your portfolio without having to think about it too much.
In other words, cruise control is set, and the highway hypnosis is starting to set in.
Having said that, just because you’re in the “boring middle” doesn’t mean you find investing to be boring, and it certainly doesn’t mean you’ve lost interest in it. You just don’t feel the need to constantly keep up with every little thing that’s happening in the market, and you don’t need to tinker with your portfolio every day.
This is what Charlie Munger would call “sit on your a** investing,” and it’s actually kind of a nice spot to be in.
The beauty of dividend investing is that you don’t have to constantly be buying in and out of stocks to get ahead. In fact, the less you do, the better off you’ll be.
As the saying goes, "Your portfolio is like a bar of soap—the more you touch it, the smaller it gets.”
In other words, if you own great companies, you just need to hold onto them, reinvest the dividends, and time will take care of the rest. That may be boring, but it sure is effective.
Now with that said, do you stay in the “boring middle” forever? Of course not.
At some point, you’ll get an itch to take yourself off of cruise control and break up the monotony of your investing routine, which will propel you into level three.
Level 3 (The Second Wind)
When you emerge from the “boring middle,” you’ll experience a second wind that reminds you why you love investing so much, and you’ll become obsessed with it all over again.
It’s hard to say where this second wind comes from. Maybe you’ve hit a certain milestone in your portfolio, or maybe you’ve randomly stumbled upon a new company that you can’t stop thinking about. It could really be anything!
This was the case for me. I think I’m in the middle of my second wind right now, and I blame it on Visa (V).
Visa was the first company in a while that I got really excited about. For a couple months, I was obsessed with learning as much as I could about the company, ultimately leading me to pull the trigger on it and grow it into what is now one of my largest positions.
Source: getquin | My largest positions
After Visa, what, for a while, felt routine is now exciting all over again. After spending some time in this third level of dividend investing, I find it to be a lot like the first.
Like all gusts, though, I’m sure this second wind will eventually die down. Throughout your investing journey, you will likely oscillate between levels two and three multiple times before you reach the fourth level of dividend investing.
Level 4 (The Home Stretch)
After years, or perhaps decades, of bouncing back and forth between levels two and three—second wind followed by boring middle and so on and so forth—you arrive at the cusp of financial freedom.
You’re so close you can practically taste it, and every fiber in your body is telling you, “Just retire already!”
At this point, you could probably leave your job right now and make it work. At least, that’s what you tell yourself, but it’d be tight. You’d be hovering somewhere around what the FIRE community calls Lean FIRE, where you have just enough passive income coming in to pay your bills, but that’s about it.
At this point, it takes all your will not to walk into your job and quit the next day, but ultimately, you know the right thing to do is hang in there a little bit longer because it will make the fifth and final stage that much better.
Level 5 (The Finish Line)
This is the moment you’ve been waiting for: the culmination of decades of dedication, discipline, and sacrifice.
You’ve finally made it to financial freedom, and it’s just as awesome as you thought it would be. It’s time to pour yourself a margarita, and toast to your victory (at least, that’s what I’ll be doing when I get there).
Still, though, the journey persists.
You may have reached financial freedom, but investing is an infinite game that never ends. You’ll be doing this for the rest of your life, and even though you’ve already won, you still have to keep playing the game.
From here, maybe this sends you back to level two, or level three—who knows. One thing’s for sure, though: You can rest a bit easier knowing the hard part is behind you. You did it.
Having said all of that, now I want to hear from you: Which level of the dividend investing journey are you in right now? Write to me here and let me know.
And a big thank you to all of the readers who responded to last week's newsletter! You can read some of the responses down below in the "Hot Takes" section. 👇
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IN MY PORTFOLIO 📈
Track your portfolio for free with getquin. You can also follow mine there (@ryne) to see all of my purchases, dividends, and other updates in real-time.
ICYMI 🎥
Inside My $67,000 Dividend Stock Portfolio | FULL UPDATE
In this update for May, I'm showing you how my portfolio performed in the last month and YTD, as well as which stocks I purchased.
CAREFULLY CURATED 🔍
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🎧 Too Much Diversification - When it comes to diversification, sometimes less is more. In this podcast, Mike the Dividend Guy discusses "diworsification", its impacts on you as an investor, and how you can maintain a well-balanced portfolio.
📚 How To Avoid Dividend Cuts - A dividend cut is one of the worst things that can happen to an investor, and unfortunately, you're bound to experience one at least once. While no one is completely impervious to dividend cuts, this article outlines some warning signs to look our for and offers guidance on how to respond when faced with a dividend cut.
SINCE YOU ASKED 💬
"Do you typically have a monthly budget you allocate to investing? Does this ever change when there is a dip and you feel like stocks you've been eyeing are on sale? I feel like I struggle with holding cash, especially during a dip like this when there are so many stocks I've been watching at attractive prices. I want to constantly be buying."
- Ryan | Email Submission
I don't invest a fixed percentage of my salary every month because my income tends to fluctuate. Instead, I invest a consistent amount that I'm comfortable with and aim to gradually increase that over time as my income (hopefully) grows.
With that said, I completely understand your struggle with holding cash. I ALWAYS wish I had more to invest, and I don't think that ever goes away. It's a good sign though, and it can motivate you to work hard at increasing your income.
It's also good motivation to not recklessly spend your money. The more money you make (and keep), the more you have to invest!
Have a question? Ask me here to see it featured in an upcoming newsletter.
HOT TAKES 🔥
Last week, I asked readers what they were doing with a few specific companies—3M (MMM), Leggett and Platt (LEG), CVS Health (CVS), and Starbucks (SBUX)—who had all been hit with some devastating news last week. Here are some of the responses:
Steve said: I owned Leggett & Platt for a while but the payout ratio was way too high to be sustainable and liquidated my position before the inevitable happened. The only other one of the four I own is Starbucks. Just got into it about a month ago and I am up to about 23 shares. I agree with you about the fundamentals of this company and I am going to treat this as a buying opportunity when the smoke clears.
Jimmy said: I brought my average price per share of Starbucks down from $91.74 to $76.55. This could be either one of the most brilliant or utterly asinine moves I have made. Only time will tell.
Janusz said: I am holding 12 shares of 3M on which I'm currently $150 down, or $84 down if include dividends, or $116 up if include also spin-off. I think management did what was necessary to keep 3M profitable, and even if I dislike the idea of getting less money in dividends from 3M, I prefer to keep it as a profitable business that may afford its dividends rather than a company that struggles for breath because of trying to keep its aristocrat status.
Robert said: I sold all my 3M shares a while ago and bought quite a lot of Starbucks after that huge drop the other day.
LAST WORD 👋
If you haven't already, consider joining my free Discord group. I call it the DRIP N' Sip Discord group, and it's basically just one big group chat filled with over 3,000 investors like yourself.
It's a really positive and uplifting community where everyone shares portfolio updates, dividend income, and is down to talk dividend stocks around the clock. Everyone is there to help each other learn and grow as investors, and I think you'd gain a lot from being a part of it.
Click here to join the DRIP N' Sip Discord group. Like I said, it's totally free, and I look forward to seeing you in there!
