NEW YORK (TheStreet) -- How many investors do you personally know?Chances are, half of the people you talk to do not have a clue what the stock market is or think of it as some super risky venture. The majority of the rest of the people have tried to invest or know someone who has, and lost some money. They give up and quit trying to make money from that route.
It is a shame, because the stock market has a proven history of being a very reliable way to build the wealth many people desire, to reach their specific goals. Losing money happens in the stock market and there is no need to quit because of it.Just like anything in life, you have to practice and learn from your mistakes to become a better investor. Not everyone is a winner; otherwise, there is not much of a reward if everyone can automatically become a winner. Everyone who sold during the last scary crash and never returned sat on the sidelines during the biggest bull market so far in our lifetime. Those who followed the advice of Warren Buffett and bought undervalued equities greedily, while others were fearful, reaped some very nice profits. Those who invested wisely, made it all back and then some.
Today these smart investors are likely sitting on paper profits, if they do not need to access the money or cash out their nest egg. Here is a good beginners guide page to stock investing I found online.
The financial education that recommends taking out 4% a year in retirement does not make much sense.
People are living longer and want to enjoy their time earlier and pursue early retirement. This will cause more years in retirement and outliving life savings.
Another reason some investors don't quite agree with it is because you are selling off assets at unknown levels. You may be selling at the lows after buying at record market highs just like we have been experiencing in this bull market. My personal strategy: I find it much more attractive to collect the dividend income and grow it to a level to adequately cover above and beyond what my expenses could amount to.
Reinvesting dividends through a Dividend Reinvestment Plan, or DRIP, is a major component of the strategy to dollar cost averaging. It is not always desirable to reinvest at record highs or if a particular dividend stock is overvalued, but people like to keep it going because it eventually smoothens itself out by the powerful effects of compounding.
At the same time as you are in the accumulation phase, fresh capital can be used to purchase more shares of a solid company's stock. You will also have the option to automatically add more commission free shares via your DRIP plan. The more shares of a stock you accumulate from these methods the higher the dividend payout will be as long as the rate is at least maintained at its current rate. That way you can keep 100% of your investments and just use the income the portfolio throws to you for an indefinite period of time. Here is an article of why one guy is sticking with his strategy of being overweight U.S. dividend paying equities among other things.