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The Power of Dividends | The Home Depot Snowball Effect - YouTube
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welcome back to the lawn acres finance
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channel
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today i want to tell you a story about
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the power of compounding
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specifically how simple it can be to
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grow small amounts of money into great
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wealth through time and patience
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albert einstein called compounding the
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eighth wonder of the world and the most
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powerful force in the world benjamin
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franklin once said money makes money and
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the money that makes money makes money
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think about that for a second
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it's true money does make money but only
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if you decide for it to make money
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we all need money to survive to buy food
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and clothes and a place to live
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so we get to choose what purpose the
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money we have is used for
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and one of the options we all have is to
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direct our money to make more money but
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in order to take advantage of
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compounding we need to go one step
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further
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as the second part of benjamin
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franklin's quote stated the money that
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makes money makes money the moment we
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let the money our money makes make us
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more money we are feeding the
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compounding machine
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initially the impact of compounding is
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small but its growth is exponential
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so the key ingredients to take full
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advantage of the power of compounding
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are time patience and of course money
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let me show you exactly how the power of
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compounding worked out for long-term
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shareholders of home depot home depot
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went public on september 22nd 1981 for
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an initial price of 12 per share
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during the last 40 years the company has
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split their shares a handful of times
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the main reason companies split their
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shares is to reduce the price of the
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stock what this meant for home depot
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shareholders is that if they purchased
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the share of stock on the initial public
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offering day for 12
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today they would have about 340 shares
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for one share purchased in 1981 and the
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original price of each share would be
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approximately 3 cents today the stock
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trades for around 333 dollars per share
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that is more than 11 000 times more than
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three cents
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data from the early 80s is difficult to
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obtain but i was able to look back as
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far as 1985. investing 100 per month
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into home depot starting on january 1st
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1985 would grow to over 4.6 million
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dollars today
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and this is just the value of the shares
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of the stock in addition to this huge
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sum of wealth investors would have
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received more than 550 000 in dividends
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your total investment since 1985 would
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have been just over forty four thousand
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dollars and this investment would
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generate around eighty eight thousand
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dollars in annual dividend income
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if you're enjoying the video please show
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me by hitting the like button and
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subscribe to the channel so you don't
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miss future videos to turn on the power
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of compounding and let your money make
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money and that money make money you
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could have reinvested this dividend
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stream along the way
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every time home depot paid a dividend
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instead of spending that money you could
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have used it to purchase more shares of
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home depot had you done this since 1985
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the value of your investment in home
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depot would be worth more than 7.3
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million dollars that's over 2.7 million
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dollars more than without dividend
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reinvestment and it would have paid a
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total of 787 thousand dollars in
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dividends think about how simple
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reinvesting dividends is you're just
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allowing the money your money makes to
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make you more money instead of spending
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it matter of fact reinvesting the
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dividend income from home depot since
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1985 would have resulted in you having
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58 more money and it would have
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generated 41 more dividend income along
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the way and all it took from you was to
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decide to let this money make you more
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money instead of spending it this
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investment with dividends we invested
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would generate around 138 000 in annual
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dividend income today that's 50 000 more
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dividend income each year compared to
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not reinvesting dividends a hundred
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dollars per month today doesn't seem
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like a lot of money but a hundred
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dollars today is not equivalent to 100
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in 1985. adjusted for inflation a
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hundred dollars in 1985 is the same as
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about 254 today which still doesn't seem
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like an unrealistic amount of money to
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set aside each month
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but maybe money is tight for you and you
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don't have much to spare each month
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that's okay because it doesn't take a
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lot of money to build wealth especially
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if you have time on your side and a
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whole lot of patience how much do you
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think was required to invest in home
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depot per month to build 1 million
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dollars of wealth since 1985
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well we just saw that 100 per month got
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you to over 4 million dollars
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so if you guessed somewhere in the 20
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range you'd be correct it took 22
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invested once per month to build a
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portfolio worth 1.02 million dollars
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that is just 9 702 invested over the
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last almost 37 years and this is without
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dividend reinvestment too
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on top of this 1 million portfolio home
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depot would have paid you over 122 000
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in dividend income during this time
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now had you opted to reinvest dividends
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along the way you would only need to
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invest 14 into home depot stock each
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month to generate a 1.02 million dollar
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portfolio this is amazing to me that you
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can turn 6174
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into 1.02 million with the help of
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compounding i bet many of you are
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wondering what company you can invest in
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today to have the same phenomenal return
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over the next 30 years the simple answer
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is nobody really knows but if you have a
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hundred dollars per month that you can
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invest
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you can go out and find 10 different
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companies that you think will keep
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growing for the next 30 years
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and even if only one or two of those
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companies has a growth history similar
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to that of home depot you'll be very
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wealthy in the future each month i come
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up with two dividend stock watchlists of
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what i think are great dividend
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companies
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if you're looking for a great place to
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get ideas on which stocks to consider
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for your portfolio then you need to
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check out my monthly watch list i'll
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leave a link to both in the description
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below
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thank you for watching don't forget to
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subscribe and see you next time
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