If you have spent any time investing in the stock market (or even researching it), the amount of investment options and things to think through can be overwhelming. Hopefully channels like ours and others can help you think through what strategies are right for YOU. Today I want to explain and discuss the difference between investing with a focus on dividends and investing with a focus on capital gains. Both can be great strategies, but they have different approaches & different results…Let’s Get into it!

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DISCLAIMER: THIS VIDEO IS FOR ENTERTAINMENT PURPOSES ONLY. YOU SHOULD ALWAYS CONSULT WITH A PROFESSIONAL FINANCIAL ADVISOR BEFORE MAKING ANY DECISIONS WITH YOUR MONEY

DIVIDENDS
What are dividends? Check out channel for other videos about dividend specific investing, but here is an overview: Some companies (usually mature companies with lots of cash) pay shareholders a portion of their earnings on a regular basis. This payment is called a dividend. The regular dividend payment is not dependent upon the performance of the stock on the market or the company as a whole. However, while it is rare, companies can decide at any time to quit paying dividends or to lower their projected dividend payment. The average dividend yield (the amount of the dividend relative to the share price) for the stocks in the S&P 500 index, has been slightly under 2.00% for the last year. For a given company be sure to check their historical and current dividend yields. Companies do not have to pay out any dividend. Some companies may pay a much higher dividend (AT&T is currently paying close to 7.00%)

CAPITAL GAINS
Let’s take a look at the other side of the coin, Capital Gains. What are capital gains? Capital gains are the increase in the value of the stock (or any asset for that matter) after it is purchased. With capital gains, there can also be capital losses! Very simple example — I buy 5 shares at $100 each. Over 5 years they increase to $200 each. The total value of my investment increased from $500 to $1000. The catch is, this $500 increase is not actually $500 in your pocket until you sell & “realize” you gains

ARGUMENT FOR DIVIDENDS
Dividends are consistent and can provide a calculated income stream over time. A high dividend yield investment provides you with a return on your investment even if the company is underperforming. A recession or downturn in the stock market can quickly deplete unrealized capital gains, but cannot take the money you have already received in dividend payments!

ARGUMENT FOR CAPITAL GAINS
Often times the stocks with the most growth potential are in an earlier stage and not mature enough to pay dividends. If you could realize a capital gain of 20%+ a year on a stock that doesn’t pay dividends you probably wouldn’t complain. Capital gains investing requires the investor to be more confident in the health/well-being of the company. A dividend-only investor may be tempted to buy ownership in a struggling company that somehow pays a high dividend. In the end they might be receiving their dividend, but they could end with a large capital loss. While it is definitely possible to create a substantial passive income stream with dividends, usually the largest wins on the stock market come from massive capital gains.

CONCLUSION
Overall, look for both! Many companies are healthy, growing, and also pay out some dividends. A good way to diversify is to have a healthy balance of high growth as well as sturdy dividend companies. If you aren’t looking for the passive income stream, you can automatically re-invest dividends to add to your capital gains! Know your stage of life and your values. Dividends might be better suited for certain people. Many people nearing retirement rely on consistent dividend income, and probably wouldn’t risk their money in a high risk/high reward stock. I hope this has helped. If you already knew most of this material and have insight into your personal strategy, comment your thoughts below! If these terms and ideas are new to you and you are trying to figure out what the investing world looks like. Comment any questions and check out other videos for more info. There are lots of options and very rarely is there one right answer for everyone. That is what makes it exciting.

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