Recently, many people around me have asked whether saving stocks can really steadily make money, especially young people who want to achieve financial freedom through it. Honestly, saving stocks is indeed a good investment method, but it’s far from as miraculous as it’s hyped up online. Today, I want to share my understanding of saving stocks.

Saving stocks actually means buying stocks and holding them long-term, gradually accumulating returns through the dividends paid by the company. It sounds simple, but there are many pitfalls in actual operation. First, you need to recognize a reality: saving stocks is not saving money; there is no such thing as capital preservation. I’ve seen too many people earn dividends but lose their principal. A typical case is the popular stock (3373) in 2021, which paid a dividend of 10 yuan with a yield over 15%. It attracted many investors at the time, but the stock price fell from 70 yuan to 22 yuan. In the end, they earned from dividends but lost on the price difference, so it’s not really profitable.

This involves the biggest risk of saving stocks—stock selection. You can’t just buy any high-dividend stock and expect to earn money passively. The preliminary work of stock selection is extremely important. Besides yield, you also need to study industry prosperity, company development, and valuation, which requires a high level of fundamental analysis skills. Many people simply can’t do this, and end up becoming bagholders.

Additionally, the funds used for saving stocks cannot be used freely at any time. This is also a problem. If you urgently need cash and have to sell stocks, you might face losses. For example, if you need money a few days before a dividend payout and find the stock price is at a low point, selling at that time means missing out on dividends and possibly losing on the price difference. Therefore, saving stocks must be done with idle funds—money that won’t be needed in the short term. For many, this is actually a limitation.

Short-term returns are also limited. The main advantage of saving stocks is long-term, relying on the market’s long-term growth and company performance improvement. In the short term, market fluctuations are large, stock prices are affected by emotions, and returns are hard to predict. For those looking to make quick money, the profit potential of saving stocks is greatly limited and not suitable for short-term trading.

But saving stocks does have its advantages. The most attractive is the power of compound interest. As long as you hold good-quality companies long-term, you can regularly receive cash dividends or stock dividends. If you reinvest the dividends, combined with the effect of time, the longer you hold, the more obvious the benefits become. Over twenty or thirty years, the number of shares held can grow like a snowball, and the total return can be quite substantial.

Saving stocks also doesn’t require watching the market all the time. For working professionals who don’t have time to study stocks, this is a huge advantage. Because it’s a long-term approach, as long as the company’s fundamentals don’t deteriorate, you can “hold on” through market turbulence, even viewing falling stock prices as a discount opportunity to buy more. The mindset is much more stable than short-term traders.

Long-term holding can also resist inflation. Well-performing companies usually adjust their profits in line with rising prices. Stocks in raw materials, finance, and essential consumer goods tend to have long-term upward trends in both stock prices and dividends, providing an anti-inflation effect. Moreover, Taiwan’s dividend income taxation is relatively favorable, allowing investors to choose to include it in comprehensive income tax to enjoy an 8.5% tax credit (up to 80k yuan) or pay a separate tax at 28%. For most dividend investors, this usually means enjoying tax refunds or lower tax burdens.

If you want to save stocks, what should you choose? In Taiwan, there are mainly three categories. First are market-cap and high-dividend ETFs, such as Yuanta High Dividend (0056), Yuanta Taiwan 50 (0050), Cathay Sustainable High Dividend (00878), Fubon Select High Dividend (00900), Yuanta High Yield Low Volatility (00713). ETFs invest in a basket of stocks, effectively diversifying risk, making them very suitable for beginners. Although their dividend yields are not the highest, the long-term returns from price differences are often more substantial.

Second are financial stocks. Because of stable dividends and relatively solid fundamentals, they have always been favorites among dividend savers. Examples include Mega Financial (2886), CTBC Financial (2891), E.SUN Financial (2884). But remember, “not going bankrupt” doesn’t mean the stock price will always go up. Timing the entry is still important. There are also telecom stocks like Chunghwa Telecom (2412), because even in tough economic times, everyone still needs to make calls and surf the internet, making their stock prices very stable.

Who is suitable for saving stocks? First are those with small single-investment amounts but long-term investment concepts. The key is having idle funds to invest regularly, because saving stocks requires a longer time to see returns. If the funds are needed in the short term, it’s not suitable. Second are those who don’t pursue quick profits and have enough patience. Saving stocks requires enduring market volatility and short-term price fluctuations, which can be difficult to resist if you’re easily influenced by market sentiment.

People with conservative investment styles, low risk tolerance, and a focus on long-term appreciation and dividend income can consider saving stocks. Lastly, those with fundamental analysis skills who can evaluate company performance, competitive advantages, and long-term growth potential.

Honestly, saving stocks is not a guaranteed path to wealth for young people, nor is it the only way. To get rich, you can’t rely solely on saving stocks. Especially for young people, with limited idle funds, it’s unrealistic to expect to turn things around just by saving stocks. It’s important to recognize the risks involved in saving stocks and learn to diversify investments as a basic skill. Choosing the right investment method based on your financial situation is equally important. Any investment involves risks—never follow the crowd blindly.