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

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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

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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

Good Morning Everyone.  Hopefully you all had a great weekend.  Today we are continuing on with another post in our “Investing: The Ins and Outs of Dividends” series.  So far we have discussed some helpful investment strategies for the New Year and we have also discussed why you should consider investing in Dividends.  Today we are discussing what Dividends are all about.  Today we are going to discuss all of the benefits of investing in Dividends including the tax benefits. Before we should invest in anything we should definitely understand what it’s all about.  The easiest way to understand Dividends is to know how they compare to other types of Investment Income such as Interest and Capital Gains.

What are Dividends

Investment Income aka the profit gains that we make on our investments can be paid out to investors in one of three formats; Interest, Dividends, and/or Capital Gains.  Interest Income is usually paid from Term Deposits, Guaranteed Investment Certificates, Money Market Investments, and Bonds.  Interest is earned from lower risk investments and it is taxable at 100% just as if it was income earned from our employment.  If we earn $100 in Interest Income then we are taxed on the entire $100.

Dividends are usually earned from investing in stocks of companies that choose to pay out their Dividends to stockholders, usually on a quarterly basis.  Dividends are a portion of the company’s profits that are paid out instead of being retained by the company.  Dividends can be paid out in cash to shareholders or they can be reinvested in the investment account to purchase more share units.

Dividends are a great way to earn Investment Income because they have tax benefits that Interest Income does not have.  There is a dividend tax credit given to all investors who declare dividends as investment income.  Therefore investing in Dividends can help us save money because Dividends are not 100% taxable like Interest Income.  This tax credit combined with the security of investing in the stocks of large companies that pay out their profits makes dividend investing a very attractive investment option.

Capital Gains are the third type of Investment Income.  Capital Gains come from the most risky types of investments.  There are two different ways that investors have to declare Capital Gains as Investment Income.  The first way that we have to declare Capital Gains is when we sell our investments. We have to declare the difference between the purchase price of our stock units and the price at which we sold them.  If we purchased our stock at $10 per unit and we sold it at $15 per unit, the difference of $5 per unit is our Capital Gain.

The second way that investors have to declare Capital Gains is when a company pays out Capital Gain profits to their shareholders.  Capital Gains are usually paid out once a year by companies.  Capital Gains come from investing in Stocks whose unit price increases.  Capital Gains are the most tax efficient type of Investment Income because only 50% of our profits are taxable.  Therefore if we earn $100 in Capital Gains we are only taxed on $50.

Even though Capital Gains are the most tax efficient type of Investment Income we have to keep in mind that the risks of investing in options that pay out Capital Gains are higher than the risks of investing in investment options that pay out Interest Income or Dividends.

Check Out the other 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

Photo by Adam B

Starting to Invest

Now that you’re beginning your career you’ve decided to get started on your financial goals. The problem for many is that there are so many options. Maybe you want to take advantage of the 401(k) match offered at your job or perhaps you want to get started with an IRA.

You may wonder if you should be thinking about retirement right now when you have debts. Should you start investing right off the bat or should you pay down your student loans and other debts? What about investing in a business idea - could that be the right move?

Whatever you plan on doing, I suggest at least saving a portion of your money for retirement planning. You don’t want to spend your retirment years struggling to pay your bills. With time on your side, you don’t need as much as you imagined to build a good sized nest egg.

Investing Basics

Wherever you begin, starting to invest can be overwhelming. It is easy to get lost with investing due to all the strategies, theories, and news that are put out there – it can be information overload. Instead of trying to keep up with the latest buy or sell pick, you need to have a general plan that can give you some overall focus, but still give you some flexibility. One book that I found helpful was The Coffeehouse Investor by Schultheis.

His 3 fundamental principles of investing are:

• Save for a rainy day. (Develop a long term financial plan)
• Don’t put all your eggs in one basket. (Diversify in different asset classes.)
• There is no such thing as a free lunch. (Capture the entire return of each basket, or asset class, through low cost index funds).

Speaking of solid investing books, I also want to recommend a couple more to get your started on the right foot.

• I Will Teach You To Be Rich: Ramit has some wonderful tactics for those in their 20s starting out with finances. He has an easy to implement system to get going and he shows you how you can tweak it to fit your style.
• The Bogleheads’ Guide to Investing: This book has a ton of information so I would buy it for your personal library. It’s a bit conservative (which isn’t a bad thing), so I’d suggest you use this as a guide to help you with saving up for retirement.
• The Four Pillars of Investing: Bernstein presents a guide on creating an investment portfolio.

You can definitely dig deeper into the topic of investing, but those books I mention will give you more than enough information to get you on a sound investing strategy.

Thoughts on Investing

How many of you have started investing (not just for retirement)? What books do you recommend for those looking at making the leap?

Photo Credit: jollyUK

Good Morning Green Panda Friends. I hope that you are all having a great 2012 so far, even though we are only a few days into the New Year. Today is the next post in our “Investing: The Ins and Outs of Dividends” series.  Yesterday we discussed some basic investment options as well as the types of accounts that are available for new (and experienced) investors.  Today we are going to discuss investing in Dividends and why Dividend Investing can be beneficial to you.

There are many different investment options available on the market from low risk investments such as Money Market Instruments which invest in short term investment instruments, to higher risk investments such as Sector Mutual Funds which invest in only one particular sector of the economy like Climate Change, Health Care, or Technology.

Dividend Investing

Dividend investing is a great investment strategy for new investors as well as for experienced investors.  Dividends are a quarterly or annual payout of a company’s profits to their investors.  Companies who pay out dividends to their investors on a quarterly basis choose to do so instead of retaining that money in the company profits.

When companies pay out their profits in the form of dividends to their shareholders it is an incentive for new investors to purchase more stock units of their company.  Company dividends are usually paid out on a quarterly basis.  They can be mailed to investors in the form of a check or they can be used to purchase more units of the same company stock.

It is most beneficial for investors to have dividends reinvested in order to purchase more units of that company’s stock each quarter.  Reinvesting dividend payouts has the same effect as compounded interest on a Term Deposit.

As an example, let’s say that we start investing with 100 stock units and we chose to reinvest our dividends in the first quarter to purchase more units of that company’s stock.  This means that the next quarter we will have more units; therefore our next dividend payout will be based on our original 100 units plus the new units that were purchased with our first quarter dividend reinvestment.

The Benefits of Dividends

There are several benefits of dividend investing such as access to investing in Equity Investments with medium risk.  We say that Dividend Investing is medium risk because yes Dividends do require investing in Equity Mutual Funds and Stocks which are considered to be higher risk investments.  However Dividends are paid from large companies who have a proven history of growth in the past, and there is lower risk involved when investing in large companies.  Some Investors consider dividend stock investing to be a low risk fixed income investment because of the regular stream of income of the dividend payout.  Some other Investors consider dividend investing to be a higher risk Equity investment because technically we are investing in stocks of a company.  This is why I consider dividend investing to be a medium risk investment.

The main benefit of dividend investing is the stability of income. When we invest in Dividend Stocks or Dividend Mutual Funds we are certain that we will be paid out a dividend every quarter.  Dividends are paid out per each stock unit.  This means that if a company pays out $0.52 per stock unit and we own 100 units we will have a total quarterly dividend payout of $52.00.

Please check out the previous post in our “Investing: The Ins and Outs of Dividends” series:

New Investment Strategies for the New Year

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Good Morning Green Panda Friends and Happy New Year.  Today is January 2^nd, it’s our first post of the New Year, and it’s also the first post in our new series titled “Investing: The Ins and Outs of Dividends”  This series will continue through until the end of January and it will discuss everything to do with investing in dividends from the many benefits to the various risks involved.  I hope you like our new series and if there is ever a topic that you would like us to cover on Green Panda please contact us by Email or on Twitter.

Today we are discussing Investment Basics.  We are going to go over some informative tips to help you get started investing.  Very often people don’t invest because they are afraid; the reason that we are afraid of something may be because we don’t fully understand it.  Green Panda is here to help you understand your basic investment options as well as basic investment strategies.

Smart Investment Options

Whenever we are starting to invest (or do anything in general) we should always begin by researching our options. Before we can choose the best investment strategies for our personal financial goals we have to first learn about the different investment options that are available to us.

We can choose from a variety of different ways to invest. The best option for us depends on our own personal financial goals.  Once we have a financial goal we will know the time horizon in which we want to invest as well as how much risk we are willing to take in order to earn a potential rate of return.

We can choose to invest with our bank.  The great thing about investing with our bank is that we most likely already have a relationship with a personal banker.  We can go into our bank branch at any time and ask questions or get help with our investing.

We can choose to invest with a discount broker.  We definitely have more investment options when we chose to open an investment account with a discount broker.  We can directly purchase Mutual Funds, ETFs, Stocks, and Currencies through our Discount Broker Account.  The downside is that there are fees involved to maintain the account as well as transact in the account.

We can choose to save money in a bank account and not invest at all. If we are not yet ready to invest in the Stock Market then we can put our money into a High Interest Savings Account which allows us to have access to our money at any time while earning a higher interest rate than a regular checking account.

Helpful Investment Strategies

- Investing for a specific short term goal.  A short term goal is a personal goal that you hope to achieve within 2 years.  Money saved for a short term goal should be invested in cash or cash like investments such as Term Deposits or Money Market Mutual Funds.

- Investing for a rainy day. An emergency fund is a medium term investment. We may not need the money any time soon, but we will eventually use the money for something. Want to make sure that we earn interest on our investments until that day comes.  Fixed Income Investments such as Bond Mutual Funds or Mortgage Backed Securities are a good medium term investment.

- Investing for Retirement.  This is our long term investment. We can afford to take the most risk on investments in our retirement account because we have the longest time horizon.  If we lose money on our investments in the next 5 years it’s ok because we have another 30 years until retirement. Try investing in Foreign Currencies or Equity Mutual Funds in your retirement account to potentially maximize your rate of return over the long term.

What are you investing for?

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