Gradually… then suddenly

 

 

 

 

Last month, the unfortunate owners of this Outer Banks, North Carolina, property lost it to the ocean. Twenty years ago, the house had plenty of beach in front of it.

Today, that’s clearly no longer the case.

No doubt, the owners would have taken preventative measures if a sudden event destroyed half of their “front yard” in a single day. (Because there are preventative measures to be taken, costly though they are.) But that’s not how it happened.

It was the constant lapping of the waves combined with the occasional storm surge that eroded the beach little by little by little… until the beach simply didn’t exist any longer.

It’s a bit like the old saying about how you go bankrupt. Gradually… then suddenly.

The truth is that profound changes, whether good or bad, tend to be built upon small, almost imperceptible events that occur over years and years.

That’s how you lose a home to the ocean. But it’s also how you build a world-class investment portfolio – the kind you pass on to your children and grandchildren.

You just have to have the knowledge, time, and discipline to make it happen.                                    By Brad Thomas

 

For long term readers for my blogs, it should be well known how much I love the long-term dividend reinvestment, so-called DRIP. It is also exactly a process for wealth building: gradually.... and then suddenly (explosive to the sky)!

I even made an illustration with MSFT to show mathematically how just a small amount of money initially invested in MSFT with dividend reinvestment may easily make you a multimillionaire as long as you given it time and patience.

Below is the real life example for a great dividend stock (MO) in one of my rollover IRAs. I added it just less than 5 years ago. I bought it twice in 2020 for 130 shares with a cost base about $5000. While these shares have grown up by about 30% since then, my overall total value of the position has grown nearly 3 times. How can it be possible? Well, since I have always reinvested the dividends, they have tripled my share number from 130 to nearly 400 now. Actually, this is only less than half of the total position I used to have with MO. Because MO has moved up quite a bit lately, I felt it had a risk of correction. So I added a covered call to partially protect the value (5 contracts for 500 shares). Unfortunately I got assigned a couple of weeks ago and 500 shares were gone. Having said that, I will likely buy them back if MO does come down in the weeks ahead. In the meantime, I'm just happy to enjoy the great DRIP journey with it as well as with many other dividend stocks.