How to use the domino effect when investing

Hey there, fellow Reader.

I want to share with you a few thoughts that came into my mind while reading a book by Gary Keller and Jay Papasan with the title “The One Thing”. 

In a nutshell, the book is about the power of focus and consistency. Over time, these are ingredients for extraordinary results.

This applies to every aspect in life.

“The One Thing” uses a strong and very inspiring metaphor, The Domino Effect.

As I learned, one single domino is capable to bring down another domino that is 50% larger.

Just amazing, when you think of that geometric progression. Really huge domino pieces can be brought down, for instance by aligning 15 dominos so that each of them tops the previous one by 50 %. 

I am not yet through the book “The One Thing”, but my key take-aways are already perfectly clear to me:

  • If you want to achieve a goal, it doesn’t matter how great it is. In fact, you could and even should “shoot for the moon”.
  • There’s almost nothing that can stop you from hitting your target if you stay focused, consistently priorize and put all your personal resources to accomplish what is the most important thing for you.
  • Success is built one thing at a time, it’s sequential.
  • You can get extraordinary results by creating a Domino Effect in your life.

So for instance, if you want to build a powerful stock portfolio, providing you with an ever growing cash stream that will in less than fifteen years support you and your loved-ones, that’s perfectly achievable.

You can achieve Financial Independence in a reasonable time frame.

Just go for it. Step by step.

  • Step one: work on your savings rate and make sure, you increase it over time. Ideally boost it well over 20 %.
  • Step two: invest your savings, for instance buy pieces of rock solid companies that tend to increase their dividend payments over time. Make sure, that you don’t overpay and stick to your investment process.
  • Step three: collect these dividends and reinvest these funds together with your annual savings.
  • Step four: repeat the process over and over again.

Your passive income stream will grow exponentially over time one day surpassing your work income. It just requires time, persistence and consistent improvements.

Let’s assume your spendings amount to USD 50’000 annually and you make USD 60’000 which implies a savings rate of roughly 17 % (savings divided by income), putting you in a position to invest USD 10’000 per year in stocks of solid businesses yielding 3 %. Let’s say, you reinvest all dividends together with your savings each year.

Now, let’s see, how it will work out.

After one year, you get USD 300 in dividends (3 % on the saved/invested amount of USD 10’000).

What about the next year? Well, your dividend income will more than double (3 % on USD 20’300).

One more year, and you receivealmost USD 1’000 in dividends.

I am always intrigued seeing how strong a consistent investment- and reinvestment process works in favour of a conservative and patient dividend growth investor.

Just imagine, after fifteen years from now, such a portfolio will have transformed into a tremendously powerful dividend machine.

And you can go much further and put that growth on turbo.

Just consistently increase the savings rate year over year and only invest in stocks of rock solid companies not only yielding 3 % but inreasing their payouts by at least 5 % each year.

Small incremental changes with huge success over time.

You only have to look some years ahead to recognize the Real Magic of the Domino Effect.

 

Disclaimer
You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

 

6 thoughts on “How to use the domino effect when investing”

    1. Yeah, it’s such a great metaphor for the amazing magic of the compound effect. Starting with dividend growth investing really is like pushing the first domino piece, income will increase steadily over time and the whole process is extremely rewarding.
      Appreciate you stopping by and commenting.
      Cheers

    1. Hi MFF
      You’re making a very important point. Debts have the compound effect working AGAINST an individual. What we want, is the opposite, we want money to work for us. And in many cases, it really is sensible to pay FIRST down debts and start investing lateron.
      The choice resp. questing “paying down debts versus starting investing” is an interesting one. It depends on the financial situation of an individual, his/her risk tolerance etc. and of course it depends on the type of debt. Personally, I would pay consumer credits back as fast as possibly (as you suggested as step 0). On the other side, from time to time and depending on the circumstances, debts CAN make a lot of sense in order to start a passive income machine e.g. taking a mortgage for a real estate investment (e.g. one plans to rent out apartments etc.), or someone lends some money to boost his/her business etc.
      Thanks for commentary.
      Wish you a Happy New Year!

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