This week in the investment series, we’re going back to college, namely we’re looking at a college graduate’s best options when it comes to investing in the market. An option overlooked by many young investors is dividend investing. Some investors feel that dividends are great options for those nearing or at retirement, but they can be a choice for college graduates as a part of their portfolio.

Some early retirement fans employ dividend investing as a big part of their exit strategy.

Dividend investing can be a great gift to yourself

Looking at Dividends

In case you’re not familiar with dividend invest, it’s  choosing to investing in companies that set aside a portion of their quarterly profits to pay stockholders.

Some reasons to invest in dividend paying stocks include:

• Passive Income Source: As long as you owe the stock, you receive quarterly dividend payments, which is another source of income. If you reinvest your dividend payments, over time you can build quite an income stream for yourself.
• Tax Advantages: Dividend payouts are typically taxed lower than interest income. Less taxes mean you keep more of your money.
• No Need to Constantly Trade: Usually stable companies pay dividends, which means you don’t have to panic and worry about the stocks fluctuating.

You may have other reasons for investing, but I think having another income source is a smart move, especially when you’re young.

Investing Options for Your Money

Where can you find dividend investments? If you’re looking for companies with a proven track record with dividends, consider the Dividend Aristocrats. These are companies on the S&P 500 Index that have consistently paid dividends (and increased them!) over the past 25 years.

You can either invest in the companies themselves (here’s a helpful list) or you can use an ETF (like the SPDR S&P Dividend ETF (SDY)) to grab them all. If you want to reduce the hassle even more, make sure you set up anautomatic investment contribution with your banking and investing company.

You still have to take care of your due diligence when it comes to investing in these companies, but the ability to offer dividends over two decades (through booms and recessions) can be attractive to many investors. When looking at possible investments, you may want to look at the following:

• Dividend yield & Dividend payout
• Dividend Growth
• Dividend Payout Ratio

Your goal is include solid and consistent dividend payers into your portfolio for long term growth. You also want to make sure you set up your dividends to be reinvested to increase your gains.

Thoughts on Investing

Investing isn’t just for the rich. If you’re willing to hustle now, it can pay off big in the long run.  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?
• What are Some Investing Risks Worth Taking?
• What are Some Investing Risks Not Worth Taking?
• A Personal Story of Risk Taken

Please share your tips in the comments!

image credit

Good Morning Green Panda Friends.  It’s Tuesday January 31st, it’s the last Tuesday of the month, and it’s also the last post in our “Investing: The Ins and Outs of Dividends” series.  It is a great idea to start investing, but its an even better idea to know what types of investments are available for us on the market.  Before we can decide which type of investments we should buy, we must first determine what type of investor we are by establishing our investor profile.

An investor profile is a series of questions that we answer in order to determine our investment personality.  There are two parts to an investment profile, personal and financial.  The personal questions of an investor profile include our age, income, and investment knowledge/experience, as well as our net worth.  The financial questions of the investor profile include our time horizon (how long we want to invest), our risk tolerance (comfort with daily fluctuations in the value of our investments), as well as our investment objective (what do we want our investments to do/how do we want them to perform).  Generally there are 6 different types of investor profiles.

Preservation of Capital

These types of investors are not concerned with growth, and they are not comfortable with any type of fluctuations in the value of their investments.  Their main objective is to ensure that their capital investment (original money) remains stable with zero risk that the money will ever lose value.  The best types of investment options are cash equivalent investments such as a high interest savings account.  Term Deposits and Guaranteed Investment Certificates can also be a good investment options for investors who are looking for preservation of their capital.

Conservative

A Conservative Investor likes their money to be secure but not necessarily 100% guaranteed. These types of investors can slowly start to buy into the market through Money Market and T-Bill Mutual Funds.  Too much fluctuation in the value of their investments make Conservative Investors nervous, but small variations can be acceptable.  Individual Government and Corporate Bonds can be a good investment option for Conservative Investors.

Income

Income Investors are looking for a regular income stream from their investments. They are not hoping that their original investment will grow substantially over time, they hope that the regular interest (usually compounded) will help their investment grow.  Bond Mutual Funds, Mortgage Backed Securities (MBS),  and Real Estate Income Trusts (REITs) are great investment options for investors who are looking for a regular income stream from their investments.

Balanced

A Balanced Investor is looking for security with some growth.  Balanced Mutual Funds are a great option for new investors because they provide a combination of both risk with growth investments as well as security with income or cash equivalent investments.  Balanced Investors can choose to purchase dividend paying Stocks or Dividend Mutual Funds in the growth portion of their portfolio.

Growth

Growth orientated investors are specifically looking for long term growth in their investment portfolio.  However with more growth comes more risk, and with more risk comes the possibility of larger losses.  Growth Investors are not concerned with short term losses in the value of their portfolios because they are focused on the value of their investments over the long term.  Growth Investors can purchase Domestic and Foreign Equity Mutual Funds as well as a variety of different Stocks, including Stocks that pay Dividends to their owners.

Aggressive Growth

Aggressive Growth Investors are willing to accept the maximum amount of losses for the possibility of the highest possible returns.  These types of investors can purchase Precious Metals such as Gold, they may also invest in specific sectors of the economy (which are considered to be very high risk) such as Technology and Health Care.

Which Type of Investor Are You?

If you like this post please check out all of the previous posts in our “Investing: The Ins and Outs of Dividends” series.  Keep reading for a new series that will start next Monday.

_{»crosslinked«}

Good Morning Green Panda Friends.  This week we will post the last two topics in our “Investing: The Ins and Outs of Dividends” series.  Among other topics during this dividend investing series we have discussed the benefits of dividend investing, why you should consider investing in dividends, if dividends are better than stocks as well as when we should not consider dividend investing.  Today we are sticking with our investment topic.  Today we are discussing very common rookie investment mistakes and how to avoid them when we are starting to invest. It is very common for rookies to make mistakes whenever we are starting something new, so Green Panda is here to help you try and avoid making some rookie investment mistakes.  However, these are only guidelines because no matter how much material we read about investing, the only tried and tested way to learn is by trial and error.  It’s definitely ok to make mistakes in anything in life, whether it is investing or something else, as long as we learn from our mistakes.

Don’t Assume You Know It All

It’s very common for rookies to learn about something new and assume that we know everything about the topic, unfortunately this is not true.  Even financial professionals who have  many years of investment experience do not know everything about personal finance, about the market, and about global economics.  It is great to learn about new topics and subjects, but it’s impossible to know every single thing about every single topic.

Know a Little Bit About Everything, But Focus on One Topic

It’s ok not to know every detail about every single type of investment. Being an investor doesn’t mean that we are a financial guru.  As a Financial Services Professional I have a general working knowledge of all things related to personal finance even though my area of specialty is investment and retirement planning.  Even though my work is focused around investment and retirement planning I do not know absolutely everything about all investment options and taxation rules.  I keep up to date with market trends and I have a general knowledge of all types of investment options so that I can give good financial advice to my clients,  but I do not concentrate on investment options that I do not directly work with on a daily basis such as derivatives and options investing.

Understand that Knowledge Comes With Experience

As a rookie investor there is only so much information that we can take away from our formal education and there is only so much knowledge that we can learn from studying the market movements and from reading about our different types of investment options.  True knowledge comes with experience whether it is gained from work experience or it is acquired by learning from our own mistakes.  We only get better with age and our knowledge only gets better with experience.

If you like this post be sure to check out all of the previous posts in our “Investing: The Ins and Outs of Dividends” series.

Last week I mentioned that taking risks can pay off when it comes to investing, especially when you’re young. Time can smooth out volatility and gives you a chance to adjust your investment strategy if its not working. However, just as important as taking smart risks is knowing when not to take them.

You’ve earned your money so take the time to avoid losing it over bad investments and schemes.

Investing Risks

For most people, investing in the stock market is a solution for a long term goal. The fluctuation of the market smooths out when looking at the big picture. Historically the stock market has had average returns of about 11%. When you factor in the powers of compound interest and regular contributions, they can be enough to help people meet their retirement goals.

However too many people confuse investing with gambling. They get into day trading because they think they can make money easily. They buy these package and follow systems, trading constantly, hoping for a big win.

Anytime someone tries to sell you on a get rich scheme with investing, you have to ask yourself if they make money from you signing up from the course or system. Ask for references from previous customers to see how they are doing, don’t just fall for the testimonials from their site’s landing page.

If you have tried the get rich quick route and haven’t seen results, knowing when it’s time to quit can protect your finances. You can redirect your resources towards another strategy.

Invest Your Money

Keep to your investment strategy and ignore the distractions. If you’re look for basic investing advice to serve as guidelines are a few to seriously consider:

• Buy Low and Sell High - Don’t let investing become emotional. Sell and buy based on what’s smart, not according to your friend’s prediction.
• Invest for the Long Term - Don’t waste your time trying to chase the latest hot stock. Consider using low cost index funds as the foundation of your retirement portfolio.
• Choose Investments that Reflect Your Goals - If you have a low risk tolerance, then don’t put all of your investment eggs into international small caps. You want to be able to sleep at night, so choose your allocation accordingly.

As you build your investment knowledge and you get more comfortable with it, you’ll see it pay off. Those that don’t get caught up in the hype tend to do much better than those that panic.

Thoughts on Investing

The good news is even if you start of contributing small amounts, 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?
• What are Some Investing Risks Worth Taking?

Photo Credit: wsilver

Good Morning Green Panda Friends.  It’s time for the next post in our “Investing: The Ins and Outs of Dividends” series.  Today we are discussing important dividend information for young investors as well as first time investors. Throughout this series we have discussed why we should consider investing in dividends, why companies pay dividends, and when we should not get into dividend investing.  Today we are rounding up all of the bits of information that young investors and first time investors need to know about dividends before you start to invest.

Dividend Investor Help

Dividends can be an easy investment strategy or they can be a very risky investment strategy depending on how we choose to invest in dividends.  The best help that I could give to a young dividend investor would be to use dividends as an equity investment to diversify your investment portfolio.

As with any investment strategy we should never put all of our eggs into one basket.  We should never have only one type of investment option in our portfolio, and we should never have only one type of asset class (cash, fixed income, or equity) in our investment portfolio.  We don’t want to have only fixed income in our investment portfolio because it may be too conservative and we won’t have any exposure to equity investing which gives us growth.  However, at the same time we don’t want to have only dividends or other equities in our investment portfolio because there are risks associated with growth investing.  If we hold only equities in our investment portfolio then we will have no security (aka fixed income investments) to stabilize our investment portfolio during times of market volatility.

Dividend Investing is a great investment strategy because it offers a regular income stream through dividend payouts.  Large companies choose to pay out a portion of their profits to shareholders through dividends.  When we choose to add a dividend investing strategy to our investment portfolio we are essentially purchasing stocks of particular companies either through a Dividend Mutual Fund or by purchasing individual stocks directly.

When we purchase Stocks in a company we are buying a little piece of that company.  We become a stockholder, otherwise known as a shareholder, which means that we own a little share of that company.

The benefit to dividend investing is that it provides the potential for growth within our investment portfolio without adding a lot of extra risk which usually comes with equity investing.  If we are a young investor and we want to add Stocks into our Investment Portfolio we should definitely do so by purchasing a Dividend Mutual Fund.

Dividend Mutual Funds are a portfolio of different stocks and therefore we are already more diversified than if we chose to buy one individual stock.  This investment strategy helps young investors become comfortable with market movements as well as the daily changes in the value of our investments without taking too much risk.

A portfolio of stocks (aka a Mutual Fund) is less risky than buying an individual stock because if one stock looses value another one in our Mutual Fund could gain; this offsets the overall losses in our investment portfolio.  However, if we only have one stock and the value goes down then so does the value of our entire investment portfolio.  As we become a more experienced investor you can research and purchase your own individual stocks through a discount broker account.

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?

When You Should Not Get Into Dividend Investing

Photo by Michael Hodge

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?

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