One asset that cuts across most investment portfolios and should be used as a building block is dividends-paying stocks. How do dividends help? There has been a lot of research done on the impact of dividend investing versus non-dividend investing. I have quoted this previously and am doing it again because of its relevance to the topic at hand. According to a report from Lebel Harriman: “Dividend income has represented roughly onethird of the monthly total return on the Standard and Poor’s 500 since 1926. According to S&P, the portion of total return attributable to dividends has ranged from a high of 53% during the 1940s – in other words, more than half that decade’s return resulted from dividends – to a low of 14% during the 1990s, when investors tended to focus on growth.

“If dividends are reinvested, their impact over time becomes even more dramatic. S&P calculates that $1 invested in the Standard and Poor’s 500 in December 1929 would have grown to $57 over the following 75 years. However, when coupled with reinvested dividends, that same $1 investment would have resulted in $1,353. (Bear in mind that past performance is no guarantee of future results, and taxes were not factored into the calculations.)” We see from this that dividends can add a huge impact in the overall return of a portfolio. As such, it should be the starting point of an equity allocation for an overall portfolio.

Source: jpost.com

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