When it comes to investing, there are a variety of different strategies that investors can use in order to grow their wealth. One popular investment strategy is dividend investing. In this type of investment strategy, investors purchase stocks of companies that pay dividends. While dividend investing can be a sound investment strategy, there are also some potential risks associated with it. Let’s take a closer look at William Schantz’s list of pros and cons of dividend investing.
William Schantz’s List of The Pros and Cons of Dividend Investing
The Pros of Dividend Investing
1. A Stream of Income
One of the biggest advantages of dividend investing, according to William Schantz, is that it provides investors with a stream of income. This can be especially helpful for retirees who are looking for a way to supplement their Social Security benefits or pension payments.
2. Potentially Higher Returns
Another big advantage of dividend investing is that it has the potential to generate higher returns than other types of investments. This is because dividends are typically paid out by companies that are doing well financially. As a result, investors who own shares in these companies tend to see their investment grow over time.
3. Lower Risk
Another pro of dividend investing is that it tends to be less risky than other types of investments. This is because dividend-paying companies are usually well-established and have strong financials. As a result, their stock prices are less likely to fluctuate dramatically.
Another advantage of dividend investing is that it can help investors diversify their portfolios. This is because dividends can be used to purchase shares in different companies, which helps to spread out the risk.
The Cons of Dividend Investing
One of the biggest disadvantages of dividend investing is that it can be taxed at a higher rate than other types of income. This is because dividends are considered taxable income by the IRS. As a result, investors who receive large dividends may end up paying a significant amount in taxes.
2. Lower Growth Potential
Another downside of dividend investing is that it may have lower growth potential than other types of investments. This is because the companies that pay dividends are usually mature and well-established. As a result, their stock prices are less likely to increase dramatically over time.
3. Interest Rate Risk
Another con of dividend investing, according to William Schantz, is that it can be subject to interest rate risk. This is because the value of dividends can fluctuate based on changes in interest rates. For example, if interest rates rise, the value of dividends will typically fall.
4. Liquidity Risk
Another risk associated with dividend investing is liquidity risk. This is because it can be difficult to sell shares of dividend-paying companies. This is because there is typically less demand for these types of stocks.
Despite the risks, dividend investing can be a great way to generate income and grow your portfolio over time. William Schantz recommends making sure to understand the pros and cons before you begin investing.