Don’t Make The Same Devastating Investing Mistake As Apple Inc. (AAPL)

For instance, if you invested $10,000 in a stock with a yield of 5% and automatically reinvested the dividends, then in 10 years’ time, your investment would be worth $16,289. That 62.9% return assumes the stock never appreciates a single penny.

Of course, that’s how it works in theory. How does it work in the real world? So far, even better…

Concerned by the growing number of investors sitting in cash, I launched a real-world, dividend reinvestment experiment called The Daily Paycheck. In December 2009, I started with $200,000 in cash and slowly invested it in carefully selected dividend-paying securities. I set up my brokerage account to automatically reinvest the dividends. Since its inception, my portfolio has gained 38.9%, slightly outpacing the S&P 500 Index with 42% less volatility.

Everyone knows the market is risky. But what few people — and even some companies like Apple Inc. (NASDAQ:AAPL) — fail to realize, is the long-term risk of sitting on too much low-yielding cash. Even at the current rate of inflation in the United States, money sitting in a low-interest checking or savings account will be worth less next year than it is worth this year.

And imagine if the rate of inflation shot up?

To put it plainly, you’ve got to let your money grow in order to retire comfortably.

Action to Take –> If you’ve been sitting out on the sidelines, then dividend reinvestment is a good way to ease yourself back in the game. Consider running your own real-world dividend reinvestment experiment. Start slowly. Pick one or two stable dividend-paying securities and watch the growth that even a few months of dividend reinvestment can deliver. And if you want to know more about my dividend reinvestment strategy, then go here.

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