I’ve been investing money in the stock market for about ten years and I’m building an annual dividend tsunami with some of my investments. This aspect of my asset management is documented on the TEV Blog.
I am now 32 years old and the development of my dividend income has been very decent so far. My additional income after taxes for the full year 2023 is projected to be €6,000 / $6,700, more than ten times what I earned in 2017. Since I started documenting, I have been able to double my dividend income on average every two years. Anyone who is familiar with the story of the king, the chessboard, and the doubling rice grains per square knows where this journey would theoretically lead.
There was no shortcut. I worked hard and relied on several factors that boosted my dividend income.
How is such a development possible? Well, I didn’t inherit any capital or get it as a gift. I haven’t won the lottery either.
I got public aid to finance my studies
For my university studies, I was dependent on state aid, two-thirds of which I had to pay back from my first salaries. I am very grateful to Germany for this kind of solidarity. It shows how important it is to give people a financial basis so that they can develop freely and realize their potential.
What many pseudo-liberals don’t want to understand is that there is no liberal society without the guarantee of a financial basis, because a society in which not everyone can develop freely due to a lack of capital is not liberal. Without this financial help, I simply would not have been able to study. In addition, society benefits retrospectively from the investment in me, because I pay a lot of taxes.
In any case, the good development of my dividend income is based on two main factors. First, I was able to generate a very high income in my late 20s. In addition, I had a very high savings rate for many years, which allowed me to invest a large part of my income in shares.
In addition, there are other factors that I consider decisive in retrospect. First, my dividend income has grown organically with my personal development. Furthermore, I made my mistakes at the right time.
It helps if you have a high income
I only started earning above-average money in my late 20s. Before that, my earnings were precarious by local standards. During my studies, I lived on about €500-€600 / $560-$700 for almost five years. My furniture consisted of the cheapest shelves I could pick up.
When I started my career as a lawyer in a big law firm at the age of 29, my human capital paid off. My monthly salary exploded and for the first time in my life, I didn’t have to keep one eye on my bank account all the time. My annual salary as an Associate in a Big Law firm was in six figures and I was able to save a decent amount every month, which I immediately put into my depot.
And this already introduces the very first and probably most important factor for the development of my dividend income. The higher the income, the more capital is available, which, in turn, increases the financial leeway. Besides, it is much easier to increase the salary than to reduce the expenses. There is no upper limit, but there is a lower limit, especially with a family.
You need high saving rates
The second decisive factor was that I continued to live my old life in a relatively moderate way and accordingly had a high savings rate. Lifestyle inflation completely passed me by for many years.
And then came the coronavirus. Due to the lockdowns and restrictions, there were hardly any opportunities for me to spend my money. We had to cancel our not-so-cheap honeymoon, restaurants were closed and the home office did not require any type of expensive clothes. Accordingly, I sometimes had savings rates of 70 or 80 percent. Of course, this money immediately went into shares.
Only organic growth feels real
The exponential growth (the doubling of my income every two years) also has to do with the fact that the capital available for has grown organically with my biography. At the beginning of my journey, the dividend income grows quite linearly with the investments. If the investment sums increase, then the passive income also automatically increases more. This means that doublers are quickly possible at the beginning.
Only later do the investments become smaller compared to the total investment and their effects are less noticeable. To maintain previous growth rates in dividend income, investments must therefore become larger and larger, which is only possible if salaries also increase in parallel.
Of course, this development has its limits, as salaries do not grow exponentially indefinitely. But this form of development is a very organic one that is oriented towards one’s professional as well as family development.
I think I would have managed another double or two if I hadn’t had a child, taken six months’ parental leave, and continued to give 130 percent as a lawyer. But I decided against it because I’m already on a good path and I don’t want to subordinate all the other joys of life to one goal.
I started early and made mistakes
I started investing when I had hardly any money. The little money I had, I invested partly in completely idiotic leveraged derivatives or options. For example, I leveraged gold mining stocks and bought unknown penny stocks. In some cases, I was successful, in many cases, I was completely wrong, and always an investment in one of the FAANG stocks would have been more lucrative.
Mistakes happen, however, and are entirely normal. My luck was that I started investing so early and later, when I earned large sums, I put the money into halfway serious companies based on value investing instead of putting money in junk government bonds or other zombie companies.
I always think big and try to get in front of the wave. I am patient and let myself be carried by the wave like a surfer.
Another important point is the knowledge that the above development is great but far from being a life changer. Don’t get me wrong. I am aware of how much money we are talking about. But this is not about morality, social criticism, or the elimination of existing injustice, but simply about financial performance and the exploitation of opportunities that are given to all of us in the form of capital.
Based on this view, it’s about thinking big. By that, I don’t mean comparing yourself with Twitter investors but rather looking at my development and exploiting my potential. This consideration is about wanting the impossible to achieve the possible.
This sounds greedy. But it doesn’t work without a certain amount of greed when you have a path ahead of you and haven’t reached the goal yet.
So I didn’t care about the initial losses when I started investing. Sure, they hurt. But in the end, I knew that they were important lessons that I had to experience to grow. I also knew that later on, the sums involved would be much higher and that the losses at that time would be pennies in retrospect.
I still want to achieve more
Even today, I still think in terms of much higher sums than what I see in my portfolio now. If I were satisfied with the income I’ve had so far, my perspective would, of course, be quite different, and that’s fine, too, I think. If you have a certain goal and achieve it, you can be justifiably proud of yourself and be happy.
But if you want to go further and further, you always have to think ahead. Like a surfer who must get in front of the wave and not swim after it. Of course, the obvious question is which life is more pleasant, that of the ever-hectic surfer or that of those who set their sights low and relax in the Winners’ Lounge? Well, I have a guess…
I accept that there will be years of setbacks, consolidations, and transitions. Nevertheless, I stick to my long-term plan.
Yes, I try very determinedly and ambitiously to increase my dividend income every year. Nevertheless, I need to emphasize that I am still very relaxed about the subject. I am not a frugalist. I appreciate all the expensive joys of life such as good food, fine wine, smoky whisky, and traveling. And, in particular, I love my family.
It is evident that there are disruptions in life, years with regressions, changes, or other transitions from one phase to another. Each phase has its opportunities and possibilities, its pitfalls and challenges. The decisive factor is dealing with all these ups and downs and the will to stay on the ball and not lose sight of the goal.
Conversely, it was important for me to be able to spend a lot of time with TEV Junior. For six months, I didn’t work and enjoyed bonding with my son. I would do it again at any time. So yeah, a huge part of me is trying to live a hedonistic life. Stocks are only one part of wealth management, and it is important that the other pillars of inner harmony are also in a healthy state.
Nevertheless, it helps immensely when a high income ensures flexibility in both investing and spending. Two or three years of being able to invest very large sums can make up for a whole decade of small investment sums. Six months at home without the old salary doesn’t matter that much because I used the years before that very well to build up my portfolio.
That was my path. Every path is different and there is not always a right or wrong.
In this article, I have traced my path and named the most important factors for the growth of my dividend tsunami. Take all of this with the necessary grain of salt. Paths are different and what works for me may not work for someone else.
I have also been very lucky. For example, I had an interest in law, which turned out to be very lucrative. That was pure luck. Conversely, it would have been foolish and my inevitable downfall to follow the same path if my professional passion had been in a different field.