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!

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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.

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.

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 Everyone.  It’s time for the next post in our “Investing: The Ins and Outs of Dividends” series.  Throughout this series (which I have loved writing) we have discussed everything about Dividends from Why You Should Consider Investing in Dividends to When You Should Not Consider Dividend Investing.  Today we are going to examine some Dividend Mutual Funds from various Mutual Fund companies to help you find the best Dividend Mutual Funds for your investment portfolio.

Most major Financial Institutions and Investment Companies offer some form of Dividend Mutual Fund.  You will notice that they all have similar qualities but the level of risk and the investment strategies can vary among different Mutual Funds.

Smart Dividend Investing

When we are choosing a Dividend Mutual Fund for your investment portfolio there are a few things that we should review on the Mutual Fund Profile to make sure that this Mutual Fund is a good fit for our investment portfolio.  We should always look at the past performance of a Mutual Fund.  Although past performance is absolutely no indication of future return we should be comfortable with the possible fluctuations in the daily unit price of the Mutual Fund.  A Mutual Fund Profile usually displays the 1, 3, 5 and 10 year past performance.  If we are comfortable with the fluctuations between the best and worst days then this Mutual Fund may be a good investment option for our investment portfolio.

Investors should review the Mutual Fund Investment Objectives before purchasing a particular Mutual Fund. The Investment Objective tells us about the investment strategy that the Fund Manager is using and what he/she hopes to achieve over the short, medium, and long term.  The investment objective gives investors an idea of which types of Stocks and Bonds etc. the Mutual Fund Manager will purchase.

Investing in Dividend Mutual Funds

The Portfolio Analysis, the Sector Diversification, and the Top Ten Holdings are also very important for new investors to review when we are thinking about purchasing a Mutual Fund.  The Portfolio Analysis basically shows us (in a pie chart) the asset allocation or the asset composition of a Mutual Fund.  It shows the specific percentages of Cash, Fixed Income, Domestic Equity, and Foreign Equity within the Mutual Fund.  The Sector Diversification shows investors in which sectors of the economy the Mutual Fund Manager invests.  Examples of some sectors are Financials, Health Care, and Technology.  If you want to invest in some of the sectors listed on the Mutual Fund Profile then it could be a good investment option.

The Top Ten Holdings of a Mutual Fund are also important to review because it lists the top companies stocks that are held in the Mutual Fund.  We don’t want to hold stocks of the same companies in all of our Mutual Funds and this is why it’s important to review the Top Ten Holdings of a Mutual Fund.

Check out some of these Dividend Mutual Fund Profiles:

RBC Asset Management offers a US Dividend Fund

PH&N Funds  has a Dividend Income Fund

HSBC offers clients a Dividend Income Fund

Fidelity has a Dividend Plus Fund

BMO Mutual Funds offers a Global Dividend Class

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

Important Dividend Information for Young Investors

Photo by hpeguk