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Team Capital Gain ๐Ÿš€ or Team Dividend? ๐Ÿ’ฐ Which works better?

First we have to understand the difference between both before making a decision which works better. Your choice between capital gains and dividends should align with your financial goals, whether you want long-term growth or steady income. Also, consider the risk appetite that one is willing to undertake.
๐Ÿš€ Capital Gain: These stocks generally belong to companies that reinvest their profits into expansion, innovation, or acquisitions, resulting in increased share prices. Capital gains are realized when you sell the stock at a price higher than what you paid.
Whoโ€™s it for?: Young guns (20s-40s) whoโ€™ve got time to take risks, looking for growth and wait for the big payoff.
The Risk: These stocks are like a rollercoaster huge ups but can drop too. Who remembered the short squeeze by $GameStop (GME.US)$ $AMC Entertainment (AMC.US)$ $BlackBerry (BB.US)$ ๐Ÿ˜‚You need patience and nerves of steel. So carefully stocks that youโ€™re in it for long-term gains and donโ€™t need money from your stocks right now such as $Apple (AAPL.US)$ $Microsoft (MSFT.US)$ $Broadcom (AVGO.US)$
Play: You buy stocks from companies that are growing fast and your goal is to sell them later for more than you paid. Example: I bought 1 share of $NVIDIA (NVDA.US)$ at $70. Now itโ€™s worth $140. My capital gain is $70 (100%). Realistically, you would want your stock ROI per year to be above $S&P 500 Index (.SPX.US)$ benchmark (average 8-9%/year) to be considered doing well.
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๐Ÿ’ฐ High Dividend Stocks: These are companies that return a portion of their profits to shareholders regularly in the form of dividends. Investors looking for steady income, particularly retirees or those with a lower risk tolerance, may prefer high dividend stocks.
Whoโ€™s it for?: Mid-age (40s-60s) and retirees, especially if youโ€™re thinking about chilling in retirement.
The Risk: Less risky, but slower growth. Great if you want that steady money, but donโ€™t expect the stock to shoot up in value.
Example: $Coca-Cola (KO.US)$ AKA โ€dividend kingโ€ has payout for 62 consecutive years! $Coca-Cola (KO.US)$ offers dividend yield of 2.7%, and thatโ€™s why Uncle Warren Buffettโ€™s company, $Berkshire Hathaway-A (BRK.A.US)$ holds $Coca-Cola (KO.US)$ shares for 36 years and still owns 9.1% of the company. Imagine for every $1million dollar worth of $Coca-Cola (KO.US)$ it would have paid him $27,000/year or $2250/mth without taking excessive risk.
Play: You buy stocks that pay you cash regularly such as $AT&T (T.US)$ $Realty Income (O.US)$ because these companies are solid and not as wild as growth stocks. Perfect for when you want consistent income, like extra cash to spend, without selling your stocks.
BOTTOM LINE:
Of course, the question I get most often from the younger crowd would be, where do find my first million?! Thatโ€™s where the difference comes into play. We first gotta build up our stash during our working years when weโ€™re young (able to ride through various market cycles as compared to retiree whose main objective should be capital preservation).
One good guide that I always practise is to invest minimally 20%-30% of my income into the market regularly. The stocks I buy should be centric on capital gain (with enough time stocks will 2X, 3X even up to 20X).
And as I grow older, i would then slowly choose to diversify some into dividend paying stocks before going fully into the latter during my retirement years; so as to fund my retirement expenses.
Thereโ€™s no right or wrong, it ultimately should be based on your risk appetite/capacity and goal. Wishing you the best in your investment journey!
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only. Read more
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