Many of us invest with the goal of funding retirement. Savvy investors may also keep an eye on the dividends from their investments. A dividend is a share of a company’s profits, redistributed to stakeholders.
Many investments may pay dividends, including some stocks and mutual funds. Another asset that may pay dividends is whole life insurance policies. What is whole life insurance? Whole life insurance is a permanent life insurance policy that, while typically more expensive than term life insurance plans, offers lifelong coverage, consistent premiums, and can potentially pay out dividends to policyholders.
Regardless of where your dividends came from, you may find it advantageous to make thoughtful and productive use of your dividends before retirement.
1. Invest and re-invest
You may want to consider reinvesting your dividends. This can mean putting your money back into mutual funds, bonds, real estate, or anything else that can grow over time.
When you reinvest your dividends, your investments may grow, and may even produce more dividends. Over the years, reinvesting can make a difference in your overall wealth.
2. Save up for something big
In addition to reinvesting your dividends, you can instead use them as extra income. Your dividends can act as a supplement to your income, as an emergency fund, or to pay for a big expense.
Investing for the future can be key, but immediate access to your money can also be helpful in many situations. Some people use their dividends to defray educational expenses, make a down payment on a home, or purchase a car. Receiving a dividend could be a good time to invest in yourself, your home, or your education.
3. Take your dream vacation
You may have heard that people gain more from experiential spending than material spending. In other words, people often report being happier spending their money doing things rather than having things.
If your investments already have you on your way toward retirement, consider putting some of your dividends toward making some memories. Whether it’s taking time to find yourself or taking time to be with people you care about, your dividends can provide a way to get some real and immediate benefit out of your long-term investments.
Don’t leave money on the table
If you’re having trouble deciding what to do with your dividends, try keeping in mind the time value of money—$1,000 that you can use today is of greater value to you than $1,000 in three years. Similarly, making the most of your dividends may mean taking advantage of them as you earn them, whether you’re reinvesting them in your portfolio, financing a big purchase, or creating new memories with your loved ones.
All investments carry some level of risk including the potential loss of all money invested. Dividends are not guaranteed.