Playing Dice With Investments

Dividends. Why do I insist on bringing them up as the only true investment? There are many experts that will tell you when you're young that you need to invest in risky stocks to get the best return while your young enough to be able to handle the risk. I have heard that and many variations of it for a long time. Putting your money in "risky" investments is the same as walking into a casino and plunking the money down at the poker table.

Why is investing gambling? Simple. The profit yielded from a stock sale comes out of the pocket of another investor, and investor that decided to buy the stock from you at that price. Like many have learned through the recent economic crises, everything that goes up, must come down. Eventually someone is going to be left holding the bag when the price goes down. Your profit has come at the expense of someone else. Someone always has to lose in this kind of arrangement.

Why are dividends any different? Because you are participating in the economic profit that a company makes. There is less risk, and such there is less immediate turn. Over time the dividend income, reinvested, will accomplish the wonder that is compound interest. The icing on the cake is the stock price. While you are still playing roulette, the chances of the end stock price being higher is relatively high.

Playing with money that should be invested in a casino is silly. When you invest in a dividend paying stock, you are participating in the profit that the company is creating. On an open exchange, buying and selling stocks based on prices creates no wealth, just transfers it around.

Of course I'm no expert.