Which Is Riskier – 1 Paycheck Or 50 Paychecks?

There is a lot of confusion and fear over investing in the stock market. Although I consider myself an intelligent investor these days, there was a time not long ago that I was a total idiot with money and I certainly thought there was some mysterious voodoo surrounding the stock market. Fear holds many of us back, even when the reasons for fear aren’t really based on facts, but rather self-contrived notions.

One particular notion of fear that I hope to dispel today is that investing in a large basket of high quality dividend-paying companies is somehow riskier than continuing to rely on one source of income for all of your needs – your day job.

As always, I like to use myself as an example. Perhaps this is anecdotal in nature, but I’m a regular guy with a middle class job and I think that’s easy to relate to for many. I work a little over 50 hours per week, earn close to $60,000 annually and although I’ve now saved and invested my way to a six-figure portfolio, this job still provides me with most of my income. However, what I’m attempting to do is replace the necessity for this income by investing the excess capital my frugal living skills allow into high quality income-producing assets via dividend growth stocks. This plan will allow me to then own all of my free time for myself, with which I can spend how I please.

But isn’t it extremely risky to rely instead on a basket of high quality companies to send me money so that I can pay my bills rather than just continue to work at my job so I can earn a paycheck? Umm, in a word, no.

If you rely solely on your job for your income needs you’re actually putting yourself in a high-risk situation. Your income comes from just one source. What happens if you can no longer work due to an unexpected life situation or illness? What happens if your employer decides your services are no longer required? What happens if your employer goes out of business? Well, in these cases you lose your only source of income. Unless you have other income sources, you’ll be in a bad financial situation in a hurry.

However, my plan doesn’t rely on one source of income. By the time I’m done, I’ll likely own a piece of 50 different high quality companies, and these companies will send me out quarterly or semi-annual “paychecks” which will very likely rise annually over the rate of inflation (more than I can say for many jobs I’ve had in the past). Why do they send out these checks? These dividend payments are a percentage of the profit these companies generate, and they send me this portion because, well, I own a piece of the company. It’s great being the owner!

The great thing with my plan is that risk itself, and fear along with it, is spread out among many companies, rather than just one. If your day job decides to discontinue your employment you’re out 100% of your income if this is your only source of cash flow. However, if one of the 50 companies I’ll eventually be invested in decides to suspend the dividend or otherwise runs into financial hardship, I’ll only lose 2% of my income (assuming equal weights). 100% vs 2%. Which is riskier? Not only that, but because of the dividend raises I was talking about earlier, I’ll likely not even see a 2% loss of income. 49 dividend raises will quickly erase whatever pain I might have felt.

There was a time just a few years ago I couldn’t imagine investing in the stock market because of the perceived risk it entailed. Now I can’t imagine NOT investing in high quality companies that pay out rising dividends, because of the risk it entails to have all of my eggs (my income) in one basket (my day job). Spread those eggs out, reduce your risk and conquer your fear. You’ll be better off for it!

How about you? Have you conquered your fear? Enjoying the freedom of reduced risk?

Thanks for reading.

Photo Credit: David Castillo Dominici/FreeDigitalPhotos.net


  1. Anonymous says

    Hi DM,

    Just wanted to let you know that I’ve just recently became a reader and am loving the site so far. I’m 29 and my goal is to payoff debt through living below my means and investing in high quality dividend stocks/ETFs so I too can enjoy my own time. Keep up the good work and we’ll keep reading!

    • says


      Glad you found the blog and enjoy what you see so far! Really happy to hear that. I do my best to inspire!

      Great job getting started on your journey to pay off debt and build wealth via living below your means so early in life. That’s fantastic!

      Stay in touch.

      Best wishes!

  2. Steve says

    Great job expressing the DGI perspective. I’m on track to receive my highest dividend month yet in August. Very exciting stuff. Not quite over the $100 mark but close! Keep up the good work.


    • says


      Congrats on the success so far. Hitting higher and higher dividend totals is a wonderful accomplishment. Coming close to $100 is also really great. It wasn’t that long ago I was in the same spot.

      Keep it up!! :)

      Best wishes.

  3. says

    I prefer “paychecks” from dividends. I don’t have to physical work for them again once after initially working for the money and put it to work purchasing a dividend paying company, REIT or ETF.

    • says

      Investing Pursuits,

      I’m with you! Dividend “paychecks” come a lot easier since once we make that one decision to invest with a high quality company that rewards us shareholders by way of rising dividends the work is over! :)

      And we can take that cash flow and reinvest it for even higher cash flow in the future. It’s a wonderful cycle!

      Best wishes!

  4. Spoonman says

    I think we’ve got ourselves classic one! This is one of those posts that you can easily give to someone that’s curious about DGI but somehow unsure of its safety.

    It’s often better to be a shareholder than it is to be an employee. As an employee you have to bust your ass off just to get a raise that keeps pace with inflation (if you’re lucky, that is. A lot of people just get a paltry 2% increase sometimes). As a shareholder of 30+ companies, you can easily get over twice the raise from a regular job by merely holding shares. As you pointed out, the risk is spread among many different companies so the income from a DG portfolio as a whole is far more robust than that from a job.

    • says


      Hey, thanks for the kind words. Glad you enjoyed it. I could have easily expounded on this concept much further, but I wanted to keep it short and sweet. I think either the light bulb goes off in your head or it doesn’t. This was one of those concepts that I got very early on. It was something that just “clicked” for me.

      It’s definitely much better to be a shareholder than an employee. The hierarchy ensures this, and the shareholders (as owners) are amply rewarded as such. I also learned this concept early on and decided to slowly, but surely, make my move from the working class to the investor class. If you can’t beat ’em, join ’em! :)

      Best wishes!

  5. Debbie M says

    It’s also safer during recessions. In a recession, many of the companies you own might refrain from increasing dividends, decrease them somewhat, or decrease them all the way. Some companies may disappear. At the same time, the stock price might be plummeting, so the timing is bad for selling. However, other stocks are probably also cheap, so the timing for switching out isn’t bad at all.

    If all your money is coming from employment, you might not get a raise or you might even get slapped with a furlough, right at the same time that other companies have stopped hiring. That sounds about the same. Only you might instead get laid off, thus losing everything, (though the unemployment benefits might last longer than if you’re laid off when it’s not a recession). Even if you qualify for unemployment, it won’t last forever and it will still mean a huge pay cut. And it’s quite likely that if you don’t get laid off, you’ll have more work and/or work stress, so a lot of your life might be a lot less fun. With reduced dividends, the only stress is from the lowered income. You might have a little more work (with volatility, you might find that you want to replace some stocks with others or re-balance, which requires research).

    • says

      Debbie M,

      Thanks for the perspective there.

      During a severe recession like we had before it’s tough no matter how you cut it. Jobs are not sacred, and neither are dividends. However, I will say that most of the companies I’m invested in did very well during the Great Recession, and many of them not only continued paying dividends but increased them. This was because the underlying business operations continued to do very well.

      The biggest point, however, is that although risk is increased across the board during a severe economic downturn, those with multiple sources of income will have reduced risk and a better chance of not seeing a significant reduction of income.

      Best regards!

    • Steve says

      Along the same lines, most dividend paying companies are concerned, at least to some degree, with whether or not their shareholders (us) are happy. They tend to resist making drastic changes to their dividend payouts for that reason. Our employers, however, may not be so concerned. I was very blessed during the recession to avoid being laid off but I saw a number of people in my company get the ax through no fault of their own. They were good workers who were loyal to the company and added to its profitability but they were still laid off. The company did what it had to to survive and that meant cutting payroll expenses. There was very little demonstration of concern for the people getting the ax. In fact, many weren’t even told in person. It was very hard to watch good people being treated that way but that is the reality sometimes.

      Being a part owner of a company rather than an employee may actually give you more consideration from management during hard times.


    • says


      Great points there. Just another great reason why I’m trying to move from the working class to the investor class. Not only is the income more diverse, but it’s more likely to be protected during an economic downturn. :)

      Unfortunate to hear of some of your co-workers. Never nice to hear about people losing their livelihood. It’s due to the risk that an employer can cut me at any time that really enforces my belief that it’s important to have multiple income sources and some cash put away.

      Thanks for stopping by!

      Take care.

  6. Anonymous says

    I like to look at my dividends differently than most i have read. I have a spreadsheet listing my monthly dividends, yearly dividends, when its paid, div growth rate, capital gain etc..etc.. but what I really like to benchmark myself to is taking the yearly dividend and divide by 52 weeks then divide by 40 hours giving you what you would make at a full time job. This is the biggest motivator for me. Im currently at $6.98 per hour but I also have $50k in capital to deploy so I estimate that will put me at ~$7.70 per hour. This is a major milestone for me because I will have passed the equivalent of a minimum wage job.

    I have found the hourly rate really puts it into perspective. It not the only thing I look at but thats what I use for my benchmarks.


    • says


      Wow, great way to look at your dividends. That’s a new perspective. Never really thought of it like that before. You definitely take the paycheck idea to the next level!

      I’m only at about $2.00/hour right now. I have a long way to go! :)

      Great job there. Not only do you have a solid base of dividends rolling in and giving you wonderful and flexible cash flow, but you have a big pile of cash sitting on the side which gives you the opportunity to pounce on attractively valued companies as they come along. Nice!

      Take care!

    • says

      I look at it the same way Mark does above. I take my projected annual income from all passive activities and divide by 2080. Right now I’m working with $3.94 an hour doing nothing!

      What’s been motivating me DM is if I can pay off my final three mortgages I’ll be looking at $9.31 an hour! Such a huge difference. Not to mention I’ll be making double my monthly expenses so I can simply retire w/in 5 years if I choose =)

    • says

      Investing Early,

      That’s awesome! You’ve got yourself a pretty decent job right there. Almost $4/hr full-time for doing exactly 0 hours of work. Nice! That’s what I’m talking about. :)

      I certainly hope you make it to where you want to be. Having the choice to retire within 5 years is quite amazing. Your time will be your own, and your future will be limitless.

      Best wishes.

  7. Anonymous says

    Thanks Dividend Mantra, its great to be in this position but you will probably be further than me when you hit 40. Im 43. I wish I would have had access to these types of articles when I was younger. Keep up the great work!


    • says


      Thanks! I appreciate the support. Glad you enjoy the blog. :)

      As far as individual progress goes, it’s different for all of us. I’ve seen some bloggers out there that are younger than I am and are way ahead of me. They’re going to blow right by me. I only try to set up goals that are relevant to the vision I have for my own life and then do my best to reach them. My progress may be astounding to some, while downright miniscule to some others.

      Thanks for following along and I hope that you’re meeting all the goals you have set up for yourself! :)

      Best regards.

  8. says

    A lot of people like to use the recent bank collapse as a reason why dividends are unstable. But your article offers solid reasoning as to why that’s a bit of a straw man. If even 5 out of your 50 stocks cut their dividends, you’ve only lost 10% of your income. Which is a substantial loss, but still 10 fold less than if you were employed at one of said banks when the recession hit. And realistically, the price of all those stocks wouldn’t go to zero, so you could sell them off and purchase some new dividend paying stocks making up at least some of your lost income.

    • says


      Absolutely. The recent Great Recession was brutal to many people, and many sources of income. The key is diversification. The better your income sources are diversified, the better chances you have of coming out of something like that relatively unscathed.

      And even if 5 out of 50 of your holdings cut dividends, the odds of the cuts being 100% are low and not only that but the other holdings raising dividends will likely significantly reduce the overall reduction in income. Diversification is key. :)

      Best wishes!

  9. says

    Hi Dividend Mantra,

    You’ve hit it right on the nail there, explaining why dividend growth investing is such a rewarding strategy! I tried investing in biotech, in emerging markets, in investment funds and trackers,and even futures, but nothing compares to good ol’ dividends flowing in 😉

    I’ve started to build a dividend portfolio a few years ago, but struggle to keep the pace up with mortgage payments and daily expenses and all… I’ve got some fresh capital to invest today, but the markets (especially dividend aristocrats) are so expensive. Are you waiting to invest any new capital for now?

    • says

      The Dividend Theory,

      I’m with you. I love seeing new dividends hit my brokerage account. I guess I’m easily entertained, but I just love it. Whenever I log in and see the cash balance higher than it was yesterday I just smile. :)

      The broader market right now is overvalued, in my opinion. The Shiller P/E is currently over 24, which means long-term returns from here are likely limited. Of course, I don’t value the entire market but rather individual companies. But as you allude to, many individual high quality companies are also expensive. I was hoping Shell would stay cheap so I could buy some more, but it has since popped after my purchase.

      I am likely going to increase my overall cash position for the next 6-12 months so my purchases will be smaller in frequency and size. This isn’t necessarily due to the expensive market, but does coincide with that nicely. There is a potential project I may be involved in this time next year, and it will require some capital. More on that to follow.

      Happy shopping! :)

      Best regards.

  10. Anonymous says

    DM, you have hit the nail on the head. Diversification is the name of the game. As the saying goes “Don’t put all your eggs in one basket”, it is scary for someone to have all of their income potential tied up at the whim of one company. I feel much safer with a portfolio of about 40 companies. :)


    • says


      Thanks for stopping by.

      Diversification is indeed the name of the game. As they say, it’s your only free lunch.

      Even if you don’t want to retire early, just having diverse sources of income certainly makes it a little less stressful when the economy hits a rough patch. Knowing that you’ll be able to pay your bills and be okay is a huge burden off your shoulders. Now that I’ve seen the light I’ll never go back.

      I’m with you. I feel much safer with a nice basket of high quality companies under my belt.

      Take care!

  11. says

    You bring up an awesome point, DM. Diversifying yourself over 50 paychecks seems a lot less risky than just having one paycheck. I have to admit that I’m still a bit worried about investing in the stock market, but that doesn’t mean I won’t do it. I think I’ll always be a bit worried about losing everything.

    • says


      Losing everything is something that all of us fear. Fear and greed are the two main emotions that drive all investors. Conquering these two emotions will make it much easier to attain long-term success. :)

      Best regards.

  12. Anonymous says

    I’m curious if you think 50 dividend paying stocks is “diverse” enough. My biggest concern about both stocks and bonds these days is they all seem to work in concert. It used to be if stocks were down, bonds would be up. Or the opposite. Now, everything seems to move in unison. I personally don’t own any individual stocks. I decided I could not afford the risk of 1, 5, 10 stocks that I pick. I have several low fee mutual funds. One of my favorite is a rising dividend fund.

    I worry that if you have 50 “not diverse enough” dividend paying stocks, they will likely all get crushed together in our eventual market swoons. I guess that is ok. Those swoons are the real time to buy if you can out think yourself.

    Here are my real diversity ideas:

    1. Diversify across stocks and bonds
    2. Diversify across “retirement” and non-retirement
    3. Diversify across roth and non-roth
    4. Diversify across stocks/bonds/etf and non-these things (land, rental property)

    I’ve been working on getting more Roth money and the “other” investments such as commercial and private rental opportunities with my investment group.

    I’m sure there are other ways to diversify. Another way I’m “diversified” is my house is paid for. It may not be returning much at times, but it sure does give us flexibility to diversify in the other areas.

    Looking forward to continuing following your journey.

    • says


      I do think 50 stocks is diverse enough, at least as one’s equity holdings. I’m not speaking in regards of correlation of one another, or correlation to the market in general. But rather income diversification. I want to know that even in a severe economic downturn, my income will be relatively stable. As I alluded to in the post, even if a couple companies cut your dividends, your overall income base will likely not suffer too much.

      First, cuts are not always 100%. Second, if most of the other companies are still raising their dividends you’ll be cushioned. Third, one should always have a spread between income and expenses anyhow. Fourth, if a dividend cut is imminent or happens, one can always sell and move on to something else producing income.

      I think you have some great ideas there. As you pointed out, some assets are not completely uncorrelated like some investors seem to think. There is no perfect system. The best one can do is own high quality income-producing assets and diversify across assets and sectors. I see that investors are sometimes worried about further diversification or if their portfolio is totally stress-proof but these are things that I don’t worry about. That’s because no matter what, I’m still in a MUCH better position than I was before I became an investor. I try to keep perspective. Certainly having six-figures is better than not, and I try to not worry so much. :)

      I hope that helped!

      Best wishes.

  13. says

    Awesome mindset shift. Even if people want to maintain a full-time job for money or security, it’s great to think about not being invested as a massive risk. I wish everyone could read this one!

  14. says

    One of your best posts as usual ! Curiosity called me and I ran an excel calculation sheet to see how much I had to invest in order to live through growing dividends (8% growth rate) without diminishing my spendings. Well ! With no market drawdown I would then sink my net worth until the sixth or seventh year, then recreate wealth accumulation. After six to seven years, the dividends grow so much that they would cover most of my expenses. In rality it will certainly look somewhat different as I have not yet included taxes and inflation. I believe it may be a good exercise to do for all dividend growth investors. To answer your question in your post: We can control our fears while only concentrating on the dividends as income. Thanks for reading.

    • says


      Thanks! Glad you liked it. :)

      I’m with you. It’s much easier to control one’s fear when there is a steady stream of passive income hitting the brokerage account. That’s just one of the many wonderful things I love about dividends – they somewhat isolate the investor from Mr. Market’s current mood. They’re paid out regardless of where the market is at.

      Best regards!

  15. says

    Nice post DM. I think being able to invest in high quality dividend companies is a great leveler. It essentially helps derisk your day job, if you happen to be working in a business with a limited or negligible moat. You get the certainly of income that may not be as readily available to someone without the right skills and education who by virtue of other opportunities in life got to where they are. I think that should be pretty empowering to most people.

    • says


      Great points there.

      I lack a moat. I work at a car dealership where I’m easily replaceable. One’s education level and skills certainly form a moat, but how big can that moat possibly be? I’d argue that it’s going to be nowhere close to as big as a multinational company with a global supply chain and a product that people around the world crave to buy. I’m a lot easier to replace than one’s daily intake of food, electricity or medicine. That’s the way I look at it.

      Good stuff!

      Best wishes!

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