You may have already started investing. You selected some investments from your company’s 401(k) and you contribute a certain portion of your paycheck towards the account regularly. You’ve decided that you’d like to get better returns.

How do you know what is too risky and what’s worth taking? What does diversification mean for your portfolio? Hopefully I can give you information to help you find the right solution for you.

Investing Risks – What are They?

First off, why should you take some risks with your investments? Quite simply more agressive investments could lead to bigger gains. Being a young investor presents a great opportunity.

Kristina did a great job of summing it up:

If we are lucky enough to start saving for retirement in our early twenties we can afford to take some risk, as long as we are investing for the long term.  It is very important to understand the time horizon, investment objective, as well as potential risk of an investment before we make an investment purchase.

So you can be more adventurous with your investments to increase your returns.

Invest Your Money Wisely

Diversifying your investments can offset some risk. You want to build your income over time and not let it be subject to extreme volatility that concentrating your investments would bring. How you invest now will be different than how you invest when you’re 5 years from retirement. Usually investors seek aggressive growth in the long term and shift to more stability of their money in the short term. That’s because your goals are now different.

Instead of worrying about income building (which typically has more volatile and risky investments) you’re looking at income stabilization (meaning you won’t get high returns, but you want to have an income stream during your Golden years).

Asset Allocation

When you’re creating your investment portfolio, you’ll likely come across information about asset allocation. Basically asset allocation is a way for you to choose investments that have a chance of increasing your returns without putting your portfolio at great risk. What you actually invest in can vary greatly to what your friends may have. We each have our own risk tolerance so you may seek more aggressive investments than your buddy is a bit more nervous.

Between now and retirement you’ll most likely adjust your investment strategy to reflect your progress and goals. For example, as your net worth builds you may want to consider more ways to diversify your investments, perhaps getting into real estate or starting a business for additional income streams.

Still Be Careful

Just because you have time on your side to smooth out volatility doesn’t mean you want to be reckless with your money. Being wise with your money means looking for more aggressive investments that don’t put your portfolio at risk.

Thoughts on Investing

The good news is even if you start of contributing small, with some time you’ll build your net worth and investments. Having a system and sticking to it can do wonders for your accounts’ balances. How many of you are investing (not just for retirement)? What’s your investment strategy? If you’re just getting started, don’t forget to check out my previous posts:

• Investing Basics- Get Started!
• What’s Your Investment Strategy?

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Good Morning Green Panda Readers.  Today it’s time for the next post in our “Investing: The Ins and Outs of Dividends” series.  So far during this series we have explored the benefits of dividend investing, why companies choose to pay out dividends to investors, and if dividend investing is better than investing in stocks. Today we are going to take a different approach in this series, today we are going to discuss the times when we should not get into dividend investing.  Dividend Investing is not for everyone and before we choose to invest in anything we should be aware of all the pros as well as the cons.

Dividend investing

There are several advantages to dividend investing, such as the regular dividend payouts as well as the opportunity to invest in large companies with a history of stable growth.  However dividend investing (directly through Stocks or indirectly through a Mutual Fund) is not for everyone.  There are risks involved when we choose to invest in dividends and sometimes these risks do not outweigh the costs and rewards.

Dividend Investing is sometimes considered to be high risk investing because technically we are investing in the stock of an individual company which is considered to be a high risk investment.  Any time that we invest in one stock, one mutual fund, or one bond we are putting all of our investment eggs into one basket.  This is considered to be a high risk investment because if we only own one investment and the value of that investment declines we don’t have any other investments to offset our losses.  This is why it’s always best to have a diversified investment portfolio, because if one investment looses value another one of our investments could gain a profit.

Some other people consider dividend investing to be a low risk investment.  Even though we are investing in the stock of a company which is considered to be a high risk investment we are investing in large companies with a proven history of growth and who have a history of paying out dividends to their investors.  Therefore dividend investing can be considered a low risk investment because of the stability as well as the regular income stream.

Dividend Investing means that we are investing in the stock of companies who pay out dividends to their investors or if may mean that we are investing in a Mutual Funds which invest in a portfolio of company stocks that pay dividends.  Either way we are purchasing stocks directly or indirectly (through a Mutual Fund); therefore there is always an advantage to buying the stocks (or Mutual Funds) when the prices are low.  Very often Preferred Shares offer a guaranteed dividend payout but the actual unit price of the share is never guaranteed.  Therefore if we can buy the stocks at a very low price per unit we can benefit from the dividend payout as well as the capital gain profit if we should ever sell our stocks and make a profit on the value of the unit price.

Dividend Investing is not for you if market fluctuations and changes in the value of your investments make you nervous in the short term.  If we are only trying to time the market and get in and out to make a quick profit then dividend investing is also not for you.  Dividend investing provides a steady income stream which is definitely beneficial over the long term.

Be sure to check out the previous posts in our “Investing: The Ins and Outs of Dividends” series:

New Investment Strategies for the New Year

Why You Should Consider Investing in Dividends

What Dividends Are All About

Why Do Companies Pay Dividends

Are Dividends Better Than Stocks?

Photo by Candie N

Good Morning Everyone. Today is the next post in our “Investing: The Ins and Outs of Dividends” series.  Hopefully you have enjoyed our series up to now as we have discussed new investment strategies, why we should consider investing in dividends, what dividends are all about, as well as why companies choose to pay out dividends to their stockowners.  If you ever have any specific questions about dividend investing please contact Green Panda anytime and we will be happy to respond to all questions.  You can also connect with us on Twitter @GreenPanda.

Dividend Investing

Dividend Investing is very often compared to investing in Stocks, but the truth is that the two are not opposites; in fact they actually complement each other.  Dividend Investing is a part of trading stocks.  We can receive dividend payouts if we purchase stocks directly or we can receive dividend payouts of we purchase a portfolio of stocks indirectly through a Mutual Fund.

One of the advantages of Dividend Investing is that we can receive a regular income stream through the quarterly dividend payouts.  Companies may choose to pay out dividends to their investors in order to encourage new investors to buy their stock.  Every time that we (as investors) purchase the stock of a company it gives that company more money to expand their business through research and business development etc.  As stockowners we own a little piece of the company.

Trading Stocks in Your 20s

There are two main reasons why people choose to trade stocks.  The first reason is because we hope to buy the stock at  a low price per unit and sell it at a higher price per unit.  This investment strategy is trading stocks in hopes of Capital Gains.  A Capital Gain profit (or loss) is the difference between the purchase price of a stock and the selling price of a stock.

The second reason why people choose to trade stocks is to receive a regular income stream through dividend investing.  Stocks can pay out a quarterly dividend as well as a capital gain distribution at the end of the year.  Investors find comfort in knowing they will still receive income in the form of their quarterly or annual dividend payouts regardless of how the actual stock unit price performs over the long term and regardless of how the price fluctuates on a daily basis.

Trading Stocks in your 20’s can be a great addition to your Investment Portfolio.  So often young investors choose to invest in Term Deposits, Guaranteed Investment Certificates, or other guaranteed investments because we may lack the resources to learn about different investment options. However, the younger we are the more risk we can take on our investment portfolio over the long term; therefore guaranteed investments may not always be the best option if we are investing in our 20s.

If you choose to trade stocks in your 20s you can open a self service investment account with an online brokerage firm.  Online Brokerage Accounts are self managed investment accounts which can be both a registered account for your retirement as well as a non registered account.  There is no advice available to investors who choose to open a self managed Online Brokerage Account.  However Online Brokerages off many online resources to help investors to watch the market movements, track our investment performance, and research our investment options.

Be sure to check out the previous posts in our “Investing: The Ins and Outs of Dividends” series:

New Investment Strategies for the New Year

Why You Should Consider Investing in Dividends

What Dividends Are All About

Why Do Companies Pay Dividends

Photo by OgilvyPRWorldwide

You’ve decide to invest for retirement as one of your goals for 2012 and you’re ready to get started. How do you start though? Do you need to make a huge amount of income or do you need an expensive financial adviser to help you?

The good news you can start today and you don’t need a lot of money to do it. What you do need is a investing strategy and a plan. I’ll show you how to do both and I’ll include some low cost, low minimum investments to help you save for retirement.

Investment Strategy

Having a strategy in mind can help you achieve or even exceed your goals, whether it’s with investing or with your income.  There are a ton of financial calculators out there to help you figure out how much you need to have at retirement.

You’re just looking for some ballpark figure. The idea is that you have a goal to work towards. It’s ok if the number is a little bit off – you can always adjust it. We’re just interested in getting you started. Besides at best these are estimates, you have no idea what will happen down the road. Don’t be paralyzed by perfection.

Now that you have a number in mind you also have to get an idea of when you’d like to retire. Again, life happens so don’t sweat about the exact number, we’re just trying to put together a general timeline to have a place to begin.

Asset Allocation – Minimize Risk, Maximize Returns

Ok, you decided when you want to retire and how much you’d like to have each year during your ‘golden years’. Now you have to decide on your asset allocation. Basically you should think of asset allocation as a helpful way for you to reach your target without putting your money at too much risk.

Since risk is subjective (some people are more aggressive with investing then others) your investments will vary from your friends or coworkers. That’s fine. You want to be able to sleep at night and not anxiously follow the stock market every minute you’re awake.

Investing Plan

Now that you’ve created your goals for invest, it’s time to create an investing plan to help you achieve them.

You’ll need to look at your budget and see how much you can contribute. If your job offers a 401(k), then you can start small with just 5% contribution. If you get a match from the company that’s a great bonus, but if not, you till get a tax break.  Starting small and building your contributions everything you get a raise can help you speed up growing your portfolio.

If you plan on investing with your IRA you’ll have more freedom with choosing your investments. Don’t worry if  you’re low on cash right now, that doesn’t mean you have to wait before you invest.

In fact, here are 5 index funds that have a minimum requirement of $250 or less to open:

• Schwab S&P 500 Index Fund (SWPPX)
• Schwab Total Stock Market Index Fund (SWTSX)
• Schwab 1000 Index Fund®(SNXFX)
• Schwab Small-Cap Index Fund®(SWSSX)
• Schwab International Index Fund®(SWISX)

From personal experience the best way to keep on track is by automating your contributions. How much should you contribute? That’s up to you, but at the very least you should try to go with $100/month. Schedule contributions the day after your paycheck is deposited and you’ll be more likely to keep to your system.

Thoughts on Investing

The good news is even if you start of contributing small, with some time you’ll build your net worth and investments. Having a system and sticking to it can do wonders for your accounts’ balances.

How many of you are investing (not just for retirement)? What’s your investment strategy? If you’re just getting started, don’t forget to check out my post last week on investing basics. I share some great resources on how to create a basic invest portfolio for your retirement.

Photo Credit: shanti

Good Morning Everyone and Happy Tuesday! Today is the next post in our “Investing: The Ins and Outs of Dividends” series.  We have already discussed investment strategies, we have discussed the benefits of investing in dividends, and we have discussed what we need to know about investing in dividends. Today we are going to continue on with our series and discuss why companies pay dividends to their investors.  It’s important to know the benefits of dividend investing and why companies pay dividends because then we can fully understand what dividend investing is all about.

Dividend Investing

Dividend Investing is when investors purchase Stocks or Mutual Funds that pay out regular dividends to their unit holders, dividends are usually paid out on a quarterly basis.  Mutual Funds are pooled investments that purchase several stocks or bonds in one investment portfolio.  If we are investing in a Dividend Mutual Fund then that Mutual Fund purchases the stock of several companies that pay out dividends to their investors.  If we buy an individual stock then the dividends are paid out to us directly because we are the shareholder. If we hold stocks through a Mutual Fund the Mutual Fund is the shareholder and they will receive the dividends directly from the company.  Then the Mutual Fund pays them out to us, the Mutual Fund holders.

Investopedia describes a Dividend as “a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share).  It can also be quoted in terms of a percent of the current market price, referred to as a dividend yield.

There are two classes of shareholders, the first type of shareholder is a preferred shareholder and the second type is a common shareholder.  The difference between the two is that preferred shareholders receive their dividend payments first but they do not have voting rights as shareholders.  Common shareholders may not necessarily receive dividends and therefore they are only purchasing the stock in hopes that the unit price will increase and they will have a capital gain.  However, common shareholders do have voting rights.

Why Pay Dividends

Companies pay out dividends to their shareholders for a number of reasons including increasing the number of shareholders as well as raising money for future expenses.  When companies pay dividends investors are more likely to buy that stock if they are looking for a regular income stream trough the quarterly dividend payouts. Stocks pay dividends to shareholders because they chose not to retain their profits; they chose to pay them out.

If investing in individual stocks to receive dividends is too risky of an investment for your personality then you can start to invest in companies that pay dividends through a Mutual Fund.  If you do decide to invest be sure to check out the Mutual Fund profile beforehand because it has a lot of important information about the Mutual Fund such as any applicable fees as well as the Mutual Fund investment strategy.

Mackenzie Financial has a US Dividend Income Fund and the investment strategy states that “the US offers one of the world’s largest pools of stable, dividend paying companies from which the manager can choose to invest. Dividends are a significant contributor to long term investment returns. Companies with a pattern of stable and increasing dividends tend to outperform the broader market over the long term.”  If the investment style of a Mutual Fund suits your investment objective then it may be the right investment for you.

Be sure to check out the previous posts in our “Investing: The Ins and Outs of Dividends” series:

New Investment Strategies for the New Year

Why You Should Consider Investing in Dividends

What Dividends Are All About

Photo by Ricardo