Dividend Growth Investing vs. High-Yield Savings Accounts: How to Get a 4% Yield

Many people become savers but don’t expand their worldview to become investors. Saving and investing are two different aspects of your overall wealth-building agenda.

But, how do you know how much to save and how much to invest? The answer lies in your own personal goals and situation.

Today, I will help you create a plan to earn a 4% yield. Always keep an eye on today’s events with tomorrow’s agenda in focus. Together, you can achieve a good balance for your finances. Let’s begin.

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The magic of saving. Why do we save money? The two primary objectives of saving money are to avoid debt and prevent emergencies from escalating into disasters.

Avoiding debt is the number one way to set yourself up for a healthy, wealthy retirement. Avoiding debt is especially difficult in America, where everyone wants you to spend your money.

We build an emergency fund to prevent random events from turning into world-destroying disasters. Nobody wants to come out of a scary situation with even more debt than before.

As “Elite Savers of America,” we should be saving our emergency funds in high-yield savings accounts. These accounts provide the highest return on our fully accessible funds.

How much should we save in our emergency fund? Common guidance says between 3-6 months’ worth of expenses. However, you can determine your numbers based on other criteria.

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The magic of investing. We save for the present and invest for the future. We should invest our money with a minimum 10-year outlook. My outlook is forever.

There are many ways to invest, including in the stock market, real estate, cryptocurrencies, and business. How you invest is a personal matter; however, it’s a good idea to diversify a bit.

Dividend growth investing is a good way to start your investing journey because you may recognize many of the companies.

Some of my favorite DGI stocks are household names like McDonald’s (MCD), Starbucks (SBUX), Johnson & Johnson (JNJ), Procter & Gamble (PG), Pfizer (PFE), and Costco (COST).

However, it’s tough to make the leap from putting money in a high-yield savings account into investing in DGI stocks. That’s what I am here for.

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Making the leap from saver to investor. The most challenging part of moving from saving to investing is overcoming the fear of the unknown.

The best way to overcome fear of the unknown is to obtain knowledge. With knowledge comes power. That’s why it’s good to find a balance between your HYSA and DGI portfolio.

To build long-term wealth, you’ll need to progress from saver to investor. Let’s look at a couple of examples to help illustrate the importance of investing.

Let’s say that Bob inserts $10,000 into a high-yield savings account in 1995 (30 years ago). It compounds at an average rate of 3% annually. 

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After 30 years, he will have $24,272. That’s not a bad haul for having his money safely in a bank account. However, this pales in comparison to DGI investing.

If you had invested $10,000 in McDonald’s (MCD) in 1995, it would be $133,219 today (reinvesting dividends). That’s a massive difference.

Deciding how to split the difference. Although DGI investing takes the high-yield’s lunch, the HYSA still serves a huge purpose—peace of mind.

Bob knew that if something unexpected happened during his 30 years, he had the resources to ensure it wouldn’t ruin him or his family.

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It’s much easier to handle the turbulence of the stock market when you have a healthy HYSA on your side. That’s why you’ll need to determine a good split of your resources.

Let’s start by deciding on the size of your HYSA. I would say six months of expenses is a good amount, especially if you have a steady job.

Once you have six months of expenses, you can start slowly building out your DGI portfolio. Remember, expenses are not everything you spend in a month.

It is good to focus specifically on expenses and not all of your spending. For example, you may spend $10,000 per month, but your expenses (bills and mortgage) may be $6,000 per month.

Over time, you can continue to add to your emergency fund to ensure you can cover your entire lifestyle for a year or two; however, you’ll need to start investing much sooner than achieving this goal.

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Moving into DGI stocks. Once you have saved a comfortable emergency fund, paid off all your debt, and read a few books, it’s time to invest in DGI stocks.

The goal of dividend growth investing is to compound your wealth over time. This is not a get-rich-quick scheme. That’s why it’s good to read books.

After 30+ years of dividend growth investing, you should have a nice amount of capital gains and a large pile of dividends coming in each and every month.

DGI investing also offers an added benefit known as margin. You can take a margin loan against your DGI holdings in the event of an emergency or for a specific project.

For example, say you have $100,000 in your M1 Finance DGI brokerage account. You could borrow $40,000 against your holdings at a fairly low interest rate.

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Therefore, instead of tapping your emergency fund, you could “create” another $40,000 to use for whatever is happening.

I consider margin loans as an additional buffer against emergencies. If you still have a source of income, taking a margin loan is a good option.

If you lose your source of income, you’ll probably want to use your emergency fund. That way, you don’t incur more debt in an already stressful situation.

Dollar-cost averaging for the win. The best way to become a dividend growth investor is through the magic of dollar-cost averaging.

Just as when saving in your HYSA, you invest a steady amount of money in your accounts every month.

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You can use a brokerage like Stash or M1 Finance to handle all the work for you. You will be surprised at how fast your money begins to compound.

Conclusion. I write this article because I know where most people become stuck in their financial lives. They understand the value of saving, but can’t bring themselves to invest.

Becoming an investor is tough, especially when picking individual stocks. However, you are picking stocks with a track record of paying and growing dividends.

As good as it feels to have a large, high-yield savings account, it won’t be enough to sustain your wealth-building aspirations. You’ll need to invest some capital.

If you are having a tough time converting to the mindset of an investor, try watching YouTube videos of dividend growth investing.

It’s very satisfying to watch people who have been dividend growth investing for 20-30 years. This may be the inspiration you need to make the leap. 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. All Right Reserved Military Family Investing