Living off dividend income can be a great goal to strive for in retirement. Expenses are often lower during your retirement years, and generating $50,000 in annual dividends can help you live comfortably.
And while that is not a small amount of dividend income, generating that much in the future may not be as daunting of a challenge as it appears to be. Here’s a look at how investing $50 per week can help fund your retirement years.
Investing in growth is the best option to build up your portfolio
Dividend stocks can be safe options for investors on a fixed income who need stability. But if you’re looking at an investing period the spans decades, then growth stocks can be a much better option for you. That’s because while there might be volatility and bad years along the way, that should balance out over the long term.
A great example is the performance of the Invesco QQQ Trust (NASDAQ: QQQ), which gives investors exposure to the top 100 nonfinancial stocks on the Nasdaq Stock Market. The tech-heavy fund includes big names such as Apple, Microsoft, and Amazon. Over the past 10 years, its total returns (including dividends) have totaled 407%. That averages out to a compounded annual growth rate of 17.6% — well above the long-run average of the S&P 500, which is close to 10%.
The fund is a good place to invest, especially if you’re unsure of which stock(s) to put your money into. It can simplify your investing strategy, making it easier to set aside money every week into the fund.
Getting your portfolio to $1 million is the key
Before you can rely on dividend income, you first need a fairly large portfolio balance. And you can build it up over the years by investing just $50 per week (assuming minimal or no commission costs).
This chart shows you how, over a period of 30 years, investing $50 every week could grow your portfolio to more than $1 million.
Chart by author.
Assuming a 15% annual growth rate (on average), a $50 per-week investment could grow to a value of more than $1.5 million after 30 years. And it would take a little more than 27 years for it to hit the $1 million mark.
Averaging such a high growth rate may be challenging, but even if it’s not quite that high, you could still end up close to or over $1 million. And with a growth-focused fund such as the Invesco QQQ Trust, you can maximize your odds of achieving those kinds of returns without having to take on much risk in the process.
The next step is to invest in dividend stocks
If you get your portfolio to $1 million or more, you’ve accomplished the hard part. Once you’ve got a balance that high, you can put it to work by investing it into high-yielding dividend stocks. During your retirement years, you’ll likely want to move away from growth stocks anyway, and into less volatile investments. And the higher that balance gets, the less of a dividend yield you’ll need to generate some significant income.
If, for example, your portfolio gets to a value of $1.5 million, you could invest in a fund or multiple investments that yield an average of 3.3%. At that rate, you could generate $50,000 in annual dividends. With a lower portfolio balance of $1 million, you would need to target an average yield of 5%.
Invest early and often for the best results
Amid inflation and rising interest rates, it’s not an easy time to find money to invest in stocks. But if you can find a way to cut $50 per week out of your budget to invest into a diversified fund such as the Invesco QQQ Trust, it can pay off in droves for you later in life.
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TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
