One of the best things about being a young investor is that the “magic of compound interest” is actually applicable. Young traders have more time to grow their accounts, are less damaged by short-term drawdowns, and – for the most part – show more willingness to try new types of trading strategies.
Don’t worry: I’m not going to make this article an argument on options versus stocks. I just want to properly set the stage by pointing out the importance of dividends; in dividends, we see the only important advantage of holding stocks for the long-term over options.
(You can read or watch my other materials on options to understand why I feel this way. In short, proper options strategies can mimic stocks in a superior way – e.g., with lower risk or with immediate profits).
After discovering options, I never imagined going back to stock investments. However, dividends brought me back. Dividend stock is the best place to park your cash when you don’t want to worry about daily fluctuations yet don’t want to keep the cash in its original, non-profitable form.
For those who are unfamiliar with my trading career, I started out with buying growth stock and funds but found the gains too low in raw terms. Young traders who follow the traditional investment methods will find that their $5,000 in the bank is still roughly $5,000 at the end of a good year. That’s because most investment books are geared toward larger accounts and aim to provide strategies that produce decent, safe gains; a decent 8% annual growth is nice when you have a $100k retirement account, but they hardly mean anything to 20- and 30-somethings just starting their careers.
After building a successful trading career through unconventional gap trading with options, I have not forgotten my beginnings – the struggles of a young investor. While I now have a respect for those “safe…