I’m always on the lookout for opportunities to give my passive income a boost. And investing in quality dividend stocks is one of my favourite ways of doing this.
I think that using £20 a week could generate £411 a month when I retire. The key, in my view, is being consistent, focusing on quality investments, and building a diversified portfolio of stocks.
Regular investing
Investing on a regular basis has a number of benefits. One of these is that I’m always in a position to make the most of buying opportunities as they present themselves within a few days.
The stock market is known for being volatile and presenting bargain prices at short notice. Even when things are looking relatively serene, the next big price drop can be just around the corner.
Putting money aside each week means I’ll always be ready when the next chance to make a great investment comes along. Whether it’s a banking crisis, an interest rate rise, or something else, I’ll have cash available.
Of course, if prices go up in any given week, that can also work. Having saved the previous week, I’ll be in a position to benefit.
Quality
In order to turn £20 per week into something returning £411 per month, I’ll need to achieve a 6% annual return for around 30 years. This isn’t straightforward, but I think it’s possible,
There are a couple of ways I can go about this. The first is by focusing on stocks that can generate that return from day one and the other involves investments that will grow to achieve that return over time.
Legal & General is an example of the first type of stock and Bunzl is an example of the second. There’s no reason why I can’t mix both strategies, but there’s something that’s extremely important either way.
With a 30-year view, the most important thing is that the companies I buy shares in will still be paying dividends for decades. That means quality businesses that have long-term competitive advantages.
Diversification
One of the big benefits of investing regularly is that it allows me to build a diversified portfolio over time. As different sectors come in and out of fashion, I’ll be in a position to take advantage.
For example, banking stocks such as Lloyds and Barclays saw big drops in their share prices back in March. I could have used my weekly cash to make the most of some attractive dividend opportunities.
More recently though, consumer defensive stocks like Unilever have underperformed. A regular investing strategy would allow me to to add these to my portfolio, widening my overall exposure.
Diversification can help reduce risk, but it can sometimes buying stocks at unattractive prices. A regular approach can limit this, achieving a balanced portfolio by investing in different stocks at different times.
Long-term thinking
Depending on whether I count the weekends, £20 per week is either £4 per day or less than £3. That doesn’t feel like a lot, but it could become something significant over time.
While nothing is guaranteed when investing, the long-term direction of the stock market has been up. Buying regularly over a number of decades gives investors like me the best chance to take advantage.
