Having options can make you feel more powerful than you truly are; however, sometimes, options can prove to be just what the doctor ordered. I have five entirely different dividend accounts, and each one serves me my dividends in another way.
Welcome back to the Investing for Dividends Series. You can find the other articles here (101, 102, 103, 104). Now, let’s jump into how to spend your dividends! Check out the complete series plus more in book format.
Today, I want to go over all the different ways I can choose to take my dividends. First, I want to review why I decide to take 20% of my dividends in cold hard cash, vice reinvesting them.
Dividends vs. Royalties
I love receiving dividends, and the intelligent thing to do is to reinvest them. The overall goal of dividend investing is to one day live on them instead of working a day job. For me, that day will never come. I have a full military pension coming my way.
So I decided to have some fun today, instead of waiting for a day that will never come. I choose to spend some of my dividends, just for fun. For the most part, I take the dividends from my Cash App in cold hard cash. But there are some others that I like to accept cash as well.
My wife and I are also investing $5,000-$7,000/month into our portfolio—spending $100-200 of the dividends isn’t that big of a deal. Plus, it’s fun to spend dividends. We worked very hard to build our portfolio, and spending some keeps us motivated to keep growing our accounts.
I have a total of five brokerage accounts that serve me dividends, and my wife has four accounts. My accounts are Cash App, M1 Finance, Charles Schwab, Well Fargo, and Stash. They all give me various options to invest and receive dividends.
I will describe the various ways I receive dividends today. In the future, I will do a review of each of my brokerage accounts and compare them to one another. Today has been a long time coming. It has taken me almost eight months to create this article. I will explain why when I talk about M1 Finance, which will be last. With no further ado, let’s hop into the different ways I have dividends served.
Boring Investing is Good Investing
Cash App. The Cash App is like a super checking account. Not only does it have a debit card, but you can exchange money with other Cash app users rather quickly. The primary way to fund your Cash app account is by transferring money via another checking account.
That is until now. We can use dividends to fund our Cash app account directly, and boy is it glorious. The way it works is that companies decide what day they are going to pay you. Since the dividends are going to a checking account and not a brokerage account, there may be a slight delay.
However, you will get an email and notification that you have received dividends, and your money will be available to spend on your checking balance. How cool is that? Of the five accounts, this is the fastest way to get your dividends into a spendable format.
I hope to one day get my Cash app to $500-$1,000/month in dividend payouts. I am currently sitting around $80. How cool would it be to receive $1,000/month in dividends into your checking account? Let’s take a look at how the process looks.
Stash. If the Cash app is the best at giving you dividends, then Stash is the worst. You have two options for your brokerage account, reinvest dividends on or off. That’s it. I value the simplicity; however, I would appreciate a few more options.
If you decide to turn off dividend reinvestment, the money will accumulate inside your brokerage account but not your Stash checking account. They call this your cash balance. This is cool because you can get that money back into the stock market as you choose without performing a transfer from my checking account.
Let’s say I was receiving $200/month from Stash dividends. I could reinvest $100 into stocks and take $100 into my Stash checking account or any other account. In the long term, that is likely how I would take them. For now, I have dividend reinvesting turned on, so no fun for me. Let’s take a look.
Charles Schwab. Charles Schwab has one significant advantage over the others, and that is options. With this account, you can choose on a per-company basis which ones you want to reinvest or take cash.
Even better, it is straightforward to switch between taking cash or reinvesting. Say, I wanted to take the whole McDonald’s dividend for this month. I could easily switch off dividend reinvestment, take the dividend, and switch reinvesting back on. This is a handy tool for when life happens and you need some cash. Let’s take a look.
Wells Fargo. I love Wells Fargo because it is an adult account. There is absolutely no hand-holding in Wells Fargo. It was my first brokerage account, and it took me a while just to be able to buy stocks.
When it comes to dividends, they use a money market account style of account. This is where you transfer money into your brokerage account, and it sits in a money market account until you pick an investment to place.
Your dividends also go directly into the money market account. It is fantastic to see your cash balance and take money out; you have to transfer it to your checking account. Not a huge deal, just an extra step.
It is complicated to turn on dividend reinvestment at Wells Fargo. You have to call every time you want to toggle reinvesting. You can go stock by stock or your whole portfolio. Either way, it is a pain in the butt, and I don’t like it. I currently have reinvesting turned on for half my investments.
Wells Fargo is my high-income account, and I like getting cash from my closed-end funds monthly. If I wanted, I could set up a monthly recurring transfer from my brokerage to my checking to capture my dividends. That would save me some headache. Let’s take a look.
M1 Finance. Now for the coolest of the bunch. M1 Finance has a cash balance model, like Wells Fargo and Stash. This balance is separate from my M1 Finance Checkings account. As the balance fills up, I can transfer money into a checking account.
It is important to note that M1 Finance does not reinvest back into stocks on an individual stock basis. All dividends accumulate into the cash balance. This is what separates M1 Finance from the other brokerage accounts and why it took me eight months to write this article.
Once you reach a certain amount in your cash balance, M1 Finance will reinvest your cash into the portfolio. You can set the amount, but the default amount is $25. Therefore, I waited to receive $25 in dividends in one month before writing this article. I wanted to see this in action.
Furthermore, M1 Finance doesn’t just spread the $25 across the entire portfolio; it systematically picks the undervalued stocks, so you are getting the best bang for your buck. So, even if I didn’t keep adding $600/month into my portfolio, it would still accumulate some good stocks.
This is a truly revolutionary way to reinvest dividends and will make you very rich. But let’s take a look, and then I will give my conclusion across all the accounts.
How We Plan to Retire on Dividends
Wrapping it up. So which one is my favorite? I hate to be wishy-washy, but why choose when I can have all five? As far as options, Stash has the least amount of them. However, when it comes to investing, Stash has some of the best options available.
M1 Finance is the most futuristic of the bunch. It will allow your dividend reinvestments to go the furthest and be used the most efficiently. Cash App is just incredibly cool. To be out and about and get a text saying you received money is beyond amazing. It is life-changing.
Wells Fargo and Charles Schwab are old money, but sometimes, you need these types of accounts. The other accounts do not have all the options that these have for finding the best possible securities.
Overall, I love them all. Each brokerage account has its own personality and functionality. It makes it fun to build these up and watch them grow, sort of like Pokemon. There are tons of different brokerages, so don’t feel limited by my selections. These are just the ones I use daily.
My best advice is to have one you know and love, then go out and play with some others. You may find some features that you love. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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