The above quote is by Warren Buffet, on the subject of attaining financial freedom. To attain financial freedom, you must create an income stream. There are two ways to create that income stream: passive income and portfolio income. Passive income includes income from rental properties and limited partnerships. Portfolio income includes income from dividends, interest, and capital gains. Growing a passive income stream requires a large investment of capital and time, as anyone who has owned rental properties can tell you. Growing a portfolio income stream requires investing very little initial capital and time. This is why the vast majority of people who have attained financial freedom, Warren Buffet included, attained their freedom by building a portfolio income stream. There are essentially three paths to choose from to create a portfolio income stream. Only one of these paths leads to true financial freedom for life and is obtainable by anyone.
The first and most common path is to sell stocks (capital gains). The problem with this path is you don't know how long you're going to live, so there's the disturbing possibility you could outlive your portfolio. The second path is to invest in fixed income assets, such as bonds and annuities (interest). The problem with this path is these assets have very low rates of return, so they require a large amount of principal to generate enough income to be financially free. The third path is to invest in dividend stocks. If you take this path you don't have to sell stocks, and if you invest in high-yield dividend stocks you don't need a large amount of principal, to create enough income to be financially free.
Albert Einstein famously said “Compound interest is the eighth wonder of the world. He who understands it earns it; he who doesn’t pays it.” Like compound interest, compounding dividends harnesses the power of the snowball effect that occurs when your dividends generate even more dividends. The day you start taking advantage of the snowball effect is the day you begin your journey to true financial freedom.
Read more about the advantages of dividend income investing under the INCOME INVESTING ADVANTAGES tab. Under the REASONS TO SUBSCRIBE tab read why you should get on the fast track to financial freedom by subscribing to Fly High Investing.