I’m to a point where the dividends generated from my investments produce almost as much annual income as my actual W-2 job! It’s a nice place to be that both provides more income and diversification of income in case I lose my job!

How do I do this?! Basically I have a lot of money invested. About $3 million sitting in index funds right now. Index funds are paying about a 2% annual dividend at the moment. 2% of $3M = $60K/year of free money.

How did I get to $3M invested?! A large part of it came from when I was fortunate enough to sell a company I started in college. That provided a windfall of about $2M. That $2M has since grown to over $5M (the rest of that money in my house and some other investments).

It’s easy to write this off as “oh, he just sold a company”. That’s partially true for sure, but before, during, and after selling the company I was also doing some important personal finance things. Specifically, I was living below my means and investing early and often. If at the age of 34 when I sold my company, I decided to start living like a baller in Southern California, I’m quite sure I could have spent through that $2M by now. Instead, I decided to put that money to WORK to provide income for the rest of my life!

Dividends are obviously great because they represent cash deposits into your account without having to sell any shares! But should you CHASE dividends? i.e. should you be buying stocks or funds that produce high dividends to get MORE of them? In my opinion: No. Buying stuff that produces more dividends is just asking for more of your growth to be immediately taxable to you and you’re likely omitting more quickly growing companies. For example last year, Vanguard’s dividend ETF (VYM) had total growth of about 17% compared to their growth ETF (VGT) which had total growth of about 29%. I don’t buy VGT either… I buy BOTH in a total market fund, like VTI!

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.

-Jeremy