How to Earn 26.5% on $20,000


Shutterstock photo

Let's see if this describes your investing strategy during the past few years:

In 2008, you got out of the market , but only after your retirement account lost 35%. Then, even after the market started to rally, you just couldn't pull the trigger to get back in. The memory of those sleepless nights was still too fresh.

But sitting on the sidelines hasn't been without pain. As the market rebounded, your money-market fund paid an averaging between 0.05% and 0.07% in the years after the recession , meaning you were on pace to double your money in roughly 1,000 years. Savings and CD rates were only slightly better.

If this describes what you went through, then don't worry. You're not alone. As of mid-April, more than $2.5 trillion dollars sat in stingy yielding money-market mutual funds .

But it doesn't have to be that way. I have a way to earn considerably more on your cash...

Millions of investors, one simple solution
In the past I asked some of my Daily Paycheck subscribers about their investing experience over the past few years...

Turns out, many of them were in the same boat. They used words like "burned," "scammed," "devastated," and "lost my butt" to describe their fallout from the dreadful 2008 market. Two readers specifically mentioned taking a 50% hit on their retirement accounts. And they complained about the "measly" yields their sidelined cash was earning.

But there was some good news.

I was happy to see that many people said the strategy behind The Daily Paycheck gave them the confidence to finally get back in the market. And I was truly impressed by their results so far. (One subscriber told me he earned $4,004.14 in dividends in 2010. Another said he was up 35%.)

Now, no strategy or investment is without risk. But the "Daily Paycheck" strategy focuses on solid, dividend-paying securities to provide steady income streams. And if you have just a little time on your horizon, then reinvesting those dividends can grow the streams into rivers.

For instance, my readers who invested in the conservative Reaves Utility Income Fund (NYSE: UTG ) received 27% more income in April 2012 than they did in December 2009 -- just by reinvesting the dividends. Including capital appreciation , UTG had total returns of 23% since I first added it my portfolio in December 2009 ... and that's on a utility fund.

Meanwhile, the income my subscribers will receive this month from one of my newsletter's master limited partnerships (MLPs) is 25.5% higher than it was in December 2009. So far, the total returns from that investment are over 60%.

The market rally might be fizzling, but that won't stop income growth
This year, the market has been an up and down rollercoaster. And maybe you're worried that you waited too long to get back in. But the beauty of a strategy that uses dividend reinvestment is that your income continues to grow, even when the market doesn't.

The chart to the right shows your potential annual income stream assuming a $20,000 initial investment in securities with an average yield of 7%. Thanks to the power of reinvested dividends and dividend growth, after 10 years your portfolio could be generating $5,299 in annual income -- that's 278.5% more income when compared to an investor who doesn't reinvest. In fact, it could be generating an effective yield of 26.5% based on your initial $20,000 investment.

If you have even a little bit more time on your investment horizon (or more money to invest, or additional dollars to invest each year), then the numbers only get better. And keep in mind that these are conservative estimates. They don't include one penny of capital appreciation.

No one should have to wait 1,000 years to double their money. And now may not be the best time to plow all your money into high-risk stocks. But there is another alternative.

Action toTake-- > Reinvesting your dividends may not be as tempting as the get-rich-quick schemes you read about. To some extent, it is the tortoise of the market. But after watching what can happen to the hares, you may want to consider a strategy that gets you across the finish line.

-- Amy Calistri

Amy Calistri does not personally hold positions in any securities mentioned in this article. StreetAuthority owns shares of UTG in one or more if its real-money or investment portfolios.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.

This article appears in: Investing , Investing Ideas

More from Amy Calistri


Amy Calistri

Amy Calistri

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by