That is the answer. Excluding splits, which are rare and unpredictable, reinvesting dividends from dividend paying stocks is the only way to get 'compound interest' type growth in the stock market. As I'm sure you were once aware (in that econ 110 class long ago), FV=PV*e^rt. r is the rate. t is time, PV is present value and FV is future value.
Right now is an interesting time in the market. The S&P 500 is down ca. 5% year-to-date. Gold is up 7% in the same time period. Silver even more. (Which really only means that the dollar is worth less - if you don't like gold, you can see it in oil. or milk. or ... but I digress). The one upside in the drop in the s&p is that yields of some stalwart blue-chips are up. While t-bills are yielding a pitiful percent and a half (1.45%), and your savings acount is likely worse. or not much better. There are a number of extremely well known stocks that are paying, 4%, 5%, and even 6% and up in dividends. Now, before scoffing at that yield, many of these same stocks are the members of the s&p 500 that have been pulling the average return of the s&p up for years. Take Pfizer for example. Big company. Rakes in billions (with a B) in revenue. And is currently paying out a 6% dividend! And if you think buying PFE for 6% is dumb, look at the track record of capital gains as well.
And here is the clincher. Pfizer has increased their dividend annually for the last 30+ years.
If you remember your math, you know the formula above is exponential and (eventually) gives the 'hockey stick' graph. Well, what happens when 'r' is growing in the equation above, according roughly to the equation above?
(too deep? too obvious? what do you think? -- oh, and if you learned all this before in school, please tell me how I *should* have payed attention)
