It's that time of year. Millions of us are making New Year's resolutions.
Unsurprisingly, the most common resolution is to lose weight. I can't think of but a handful of people who wouldn't want to shed a couple of pounds.
But despite our best intentions, statistics show the vast majority of us won't keep our resolutions (yes, they actually have studies on this stuff).
The "experts" say the best way to keep your resolutions is to start small. Make an attainable goal and take baby steps to achieve it. Radically changing your life on Jan. 1 is difficult at best. Why would you set yourself up for failure?
So I have a small change to make to your investing for 2011. I'd like for you to put money in the best investment you'll ever make. It may not sound like a small task, but don't worry. It will be easy; even easier than losing those few pounds.
All it takes to start is $1,000. I selected this amount because it's a nice round number to start from and if you're an investor, you can usually come up with that much without too much trouble or sacrifice. If you'd like to invest more, that's no problem. It will simply amplify your results.
With your $1,000, I want you to find one investment that pays anywhere from 6-10% in dividends each year. It is best if the stock pays monthly, but quarterly is fine.
It doesn't really matter if the investment is a stock, a fund or even a master limited. What's most important is that the investment be relatively stable, but -- and I can't emphasize this enough -- the dividends have to be secure.
High-yielding blue-chip stocks such as AT&T (NYSE: T) are a good choice for this test. AT&T pays a shade below 6%, but that's OK. Real investment trusts like Government Properties Income Trust (NYSE: GOV) would also work well. The higher the , the better the results of your test should be, but anything in the 6-10% range should be fine.
Once you have your investment picked out, you know where to put all of your $1,000. But there are two more small steps to take.
First, you have to reinvest your dividends. Usually all this takes is a call to your broker or selecting thein your online account. Second, you should add $1,000 to your initial investment once a year.
I told you it was easy. But if you can follow this simple strategy, it might end up being the best investment you ever make.
Say your $1,000 is bringing in 8% a year in dividends and the price rises a pedestrian 4% a year. At the end of your first year, your $1,000 would be worth about $1,120 for a return of 12%.
That's not bad, but as time passes the results of the test prove how valuable the strategy is. Take a look at the chart below.
At five years you will have put up just $5,000, but your investment would be worth $6,393. That's a 28% gain. For reference, the S&P 500 is up 2% over the last five years.
In 10 years, you'll be sitting on a 78% gain... and an investment worth $17,823. Your 8% would also be worth more than $1,400 a year. In 15 years you'd have more than $27,000 in your investment.
Is this a way to get rich quick? Sorry, if that's what you want, then stick to all-or-nothing growth stocks. (How well has that worked out for investors in the past decade?) Is it a way to get rich slowly? Absolutely.
Action to take --> With the start of a new year, making smart financial choices is near top of many people's resolution list. You can make it easy on yourself, starting with just $1,000 and most likely turning it into the best investment you'll ever make.