Dividend Snowball Effect. Dividend Investing. Compounding. Snowballing.
All different names for the compounding effect of reinvesting dividends to increase future dividend payments. This is how you can play the long game of passively investing in indexed funds to achieve financial independence. Saying and explaining this can be a mouthful. We all love abbreviations, but I recently discovered a way to sum it up in one word that can be used as a verb or a call to action. With or without a hashtag – all you need is one word…
The power of the Dividend Snowball
Buffet’s Snowball was something I discovered after my Financial Awakening, but those that led me on the path of Financial Independence no doubt received some inspiration from the big man. I stumbled across this brilliant video that encapsulated the concept in around 6 minutes – “The power of Dividend Investing – The snowball effect”
I was blown away by its simplicity and It reinforced the power of dividend investing and compounding, to create your own snowball with empowering examples. The return on $1000 over 25 years if re-invested was amazing. The return on $1000 a month of 25 years blew my puny mind. I was excited and I shared this video with a few people. Usually I would get no response but this one time, I got it when I wasn’t expecting it…
One word…One action
A guy I worked with was into shares. He bought speculative stocks like hemp, shopping centres, and anything that was a hot tip from a guy that knew a guy. He didn’t do any research and he didn’t know anything about dividend investing, he knew buy low, sell high. Unfortunately, that approach never worked out for him. It was always big low, watch the shares sink then pray for a miracle.
I shared this video with him and I spoke about my plans and the power of the dividend snowball. Eventually, he started buying ETF funds and stopped speculating on “hot” stocks. I was happy to see he had a better strategy and was doing well. He messaged me recently and told me he received his first dividend cheque from one of his ETF stocks. I responded, and asked if he was re-investing it. It didn’t take long to receive a response.
It was a one word message…snowball.
Summary
That’s it. One word says it all. I was proud of my friend but also proud of myself for helping him improve his approach to investing. The concept has existed for a long time, but I like the idea of making it more than a thing, or a concept, or just a word. There is more power in making the word an action. And that one word says it all… snowball.
Let me know what you think
M. Moneyman
