Shovel Ready Project
We are in a period of economic uncertainty. Some of today’s inflationary woes are a result of loose monetary policies and excess government spending. These practices span multiple presidencies and are associated with both major U.S. political parties. Pick your own heroes and villains for how we got here. This is a personal finance blog, not a political one.
Despite the uncertainty, I am encouraged by the fact that most people I speak with have healthy balance sheets. In fact, I frequently get questions about what to do with excess cash.
Remember the bipartisan stimulus in 2009 that was granted to infrastructure projects that were “shovel ready,” or where the money could have as quick an impact as possible?.
Here are my reflexive shovel-ready ideas for cash:
Pay off things like credit card debt. This is like using your money to build a dam so your reservoir can stop draining away from you.
Ensure you have savings to last for 3-6 months. This is the money that stays on high-alert for unexpected things like a new HVAC system, tires or the loss of employment.
But what do you do, if you have those things covered and you find that you have funds still sitting around leaning on their shovels, telling jokes and smoking cigarettes?
My favorite shovel-ready project for idle money is to put it to work in the pursuit of growing stock dividends. Many public corporations share a portion of their profits with shareholders in the form of dividends.
However, it isn’t enough to find a steady business that pays a reliable dividend. The goal is to find businesses that grow that dividend steadily each year. A company that can grow its dividend by 10% year-over-year essentially takes a little more than 7 years to double its dividend.
This is not a recommendation for any particular investment or investment product, mind you. But a dividend of 2.5% today that steadily increases 10% per year, pays more than 5% on the original investment after 8 years and pays more than 10% after 16 years.
Notice we haven’t even talked about price appreciation. Companies that are run well-enough to pay and grow dividends like this attract investment dollars, driving up their share price. That’s great news to you, the buy-and-hold investor.
Reinvest those dividends, and the benefits appreciate even more. This is like Crossfit for your dollar bills. When your money starts making money and you can reinvest that money back into the effort of making more money, you’re starting to build wealth. More accurately, your money is building wealth for you. And by consistently reinvesting dividends each quarter, you get the benefit of “dollar cost averaging.” When the market dips, you pick up a few more shares and when it’s strong you pick up a few less, but you are consistently growing your portfolio without the stress of whether you have timed the market correctly. You’re going to need more shovels.
Best of all, this is a long term strategy that outflanks the inflation we started off discussing. Want to know more? Let’s talk.
