When it comes to the Stock Market most people try to make money off of the appreciation of a stock. Buy low sell high is common wisdom.But one of the stock tips which professional investors who have made a lot of money in the market tell you is to not buy a stock just to sell it.
This might sound bizzare. Why would you buy a stock just to own it? Don’t you make money once you sell the stock? Well yes, but what comes after that? fees and taxes. Buying the best dividend paying stocks in fundamentally strong stocks and making your money off of the dividends instead of off of the appreciation kind of seems crazy at first, but if you look at the facts it makes a lot of sense.
1. Steady Income
Dividends mean steady income.Buying and selling an investment means a very irregular income. You might make money and then lose it, whereas with dividends as long as that stock is going to be around it will always be making you money.It really can be a great source of passive income.
2. Grows Tax Deferred
Of course you will have to pay taxes on the dividends that you make. This is a given. However by holding onto your stock you are letting your wealth grow without having being cut down by taxes.If you sell your stock then wealth building will take you a lot longer because you will have to pay taxes on the profits that you make by doing so.
3. Don’t Kill The Goose That Lays The Golden Eggs
Stocks that pay dividends are little like the Goose that Lays the Golden Egg.In the fairy tale a poor man finds a goose that lays golden eggs. This provides him with some wealth, but he eventually gets greedy and cuts open the goose to get all the gold. This led to a dead goose and no more golden eggs.
This is a little like selling a stock which is paying you consistent dividends. By doing so you lose the consistent income you get from dividends.
